2013-vinci-annual-report

2. Financial risks
2.1 Counterparty risk and credit risk
The Group is exposed to counterparty risk stemming from contracts and financial instruments contracted with its financial partners, should
the debtor refuse or be unable to honour all or part of its commitment. The consequence for VINCI may be a loss of value (in its cash investments,
the acquisition of negotiable debt securities, marketable securities, financial receivables, derivative instruments and guarantees or
sureties received) or a loss of liquidity (on the amounts of its unused confirmed credit facilities).
VINCI is also exposed to credit risk in the event of client default, as described in section 1.2.2.
The Group’s exposure to counterparty and credit risks and its procedures to manage them are specified in Note 22.5 to the consolidated
financial statements, page 267.
128 VINCI 2013 ANNUAL REPORT
2.2 Liquidity risk
Group liquidity must be evaluated via its cash and confirmed unused credit lines.
The Group’s exposure to liquidity risk relates to its obligations to repay its existing debt (disclosed in Note 21.2.1 to the consolidated financial
statements, page 260), to the financing of its future needs associated in particular with concession companies’ investment programmes
(see Note 9 to the consolidated financial statements, page 236) and with the Group’s general needs. Details of these obligations and the
Group’s resources to meet them (cash flow surpluses, unused confirmed credit lines, etc.) are given in Note 21 to the consolidated financial
statements on page 257.
The Group diversifies its funding sources by using bond markets, banks and supranational banking organisations such as the European
Investment Bank (EIB). Details of these sources are specified in Note 21 to the consolidated financial statements, page 257. Net cash is
managed in accordance with the provisions specified in Note 21.2.2 to the consolidated financial statements, page261, backed by reporting
which specifies the yield of the various assets and monitors the level of associated risks.
Some financing agreements include pre-payment clauses in the event of non-compliance with financial covenants. These are described in
Note 21.2.5 to the consolidated financial statements, page 262. The thresholds imposed on these ratios were in compliance at 31 December
2013.
2.3 Market risks (interest rates, currency, equity and commodity risks)
VINCI is exposed to changes in interest rates (mainly in the eurozone) on its floating-rate debt and to changes in credit spreads applied by
lenders. VINCI is also exposed to currency risk stemming from its activities outside France. However, this risk is limited by the fact that only
about 26% of revenue is generated outside the eurozone. Management of interest rate and currency risks is explained in Notes 22.1 and
22.3 to the consolidated financial statements, pages 263 and266.
The risk on commodity price increases is relatively limited because, as stated in paragraph 1.2.2 and Note 22.4 to the consolidated financial
statements, a large share of the Group’s revenue is generated under short-term contracts or contracts containing price-indexing clauses.
As a general rule, unprocessed raw materials form a small proportion of cost structures.
In the case of large-scale contracts with non-revisable prices, commodity risks are assessed on a case-by-case basis and managed, whenever
possible, using suitable methods such as:
ˇˇfirm price agreements with suppliers for a given time period;
ˇˇcash-and-carry deals, with supplies bought or paid for by the client at the beginning of the work project;
ˇˇmore marginally, hedging derivatives based on commodity indexes, particularly where the supplier uses a price review mechanism based
on an index that can be hedged in financial markets.
Equity risk relates to shares held directly or indirectly by VINCI: treasury shares, shares in ADP, assets to cover retirement benefit obligations,
etc. This risk is described in Note 22.2 to the consolidated financial statements, page 266, and point 3 in Note C (Treasury shares) to the
parent company financial statements, page 295.
2.4 Impact of public-private partnerships (PPPs) and concession contracts
on the Group’s financial situation
Following review by the Risk Committee of the business line concerned, these projects are submitted to the VINCI Risk Committee for
examination and approval. Projects are generally carried out through special purpose vehicles (SPVs), which are financed by loans made
directly to them, with little or no recourse against their shareholders, backed by the future revenues or receivables. The capital outlay is made
minimal and varies according to the nature of the risks involved (e.g. traffic volumes and country), and the amount and share of project
financing assured by the concession-granting authority. A very large proportion of floating-rate debt raised by SPVs is usually covered by
fixed-rate hedges in accordance with the commitments made to lenders.