Page 292 - 2012 Annual Report

292 VIVENDI l 2012 l Annual Report
FINANCIAL REPORT – CONSOLIDATED FINANCIAL STATEMENTS – STATUTORY AUDITORS’ REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS – STATUTORY AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS –
STATUTORY FINANCIAL STATEMENTS 4
4
III - CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 23 Financial instruments and management of financial risks
23.2. MANAGEMENT OF FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS
As part of its business, Vivendi is exposed to several types of financial
risks: market risk, credit (or counterparty) risk, as well as liquidity risk.
Market risks are defined as the risks of fluctuation in future cash flows
of financial instruments (receivables and payables, as described in
Note 23.1 above) that depend on the evolution of financial markets.
For Vivendi, market risks may therefore primarily impact interest rates
and foreign currency exchange positions, in the absence of significant
investments in the markets for stocks and bonds. Vivendi’s Financing and
Treasury department centrally manages significant market risks, as well
as its liquidity risk within the group, reporting directly to Vivendi’s Chief
Financial Officer, a member of the Management Board. The department
has the necessary expertise, resources (notably technical resources), and
information systems for this purpose. However, the cash and exposure
to financial risks of Maroc Telecom Group and Activision Blizzard are
managed independently. The Finance Committee monitors the liquidity
positions in all business units and the exposure to interest rate risk
and foreign currency exchange rate risk on a bi-monthly basis. Short-
and long-term financing activities are mainly performed at the group’s
headquarters and are subject to the prior agreement of the Management
and Supervisory Board, in accordance with the Internal Regulations.
However, in terms of optimizing financing operations within the group’s
debt management framework within the limits already approved by the
Supervisory Board, a simple notification is required.
Vivendi uses various derivative financial instruments to manage and
reduce its exposure to fluctuations in interest rates and foreign currency
exchange rates. All instruments are either listed on organized markets
or traded over-the-counter with highly-rated counterparties. All derivative
financial instruments are used for hedging purposes and speculative
hedging is forbidden.
Derivative financial instrument values on the Statement of Financial Position
(in millions of euros) Note
December 31, 2012 December 31, 2011
Assets Liabilities Assets Liabilities
Interest rate risk management 23.2.1 104 (10) 60 -
Pay-fixed interest rate swaps - (10) - -
Pay-floating interest rate swaps 104 - 60 -
Foreign currency risk management 23.2.2 13 (26) 41 (5)
Other 23.4 20 - - -
Derivative financial instruments 137 (36) 101 (5)
Deduction of current derivative financial instruments (12) 15 (39) 5
Non-current derivative financial instruments 125 21 62 -
23.2.1. Interest rate risk management
Interest rate risk management instruments are used by Vivendi to reduce
net exposure to interest rate fluctuations, to adjust the respective
proportion of fixed or floating interest rates in the total debt and to
optimize average net financing costs. In addition, Vivendi’s internal
procedures prohibit all speculative transactions.
AVERAGE GROSS BORROWINGS AND AVERAGE COST OF
BORROWINGS
In 2012, average gross borrowings amounted to €17.1 billion (compared
to €13.7 billion in 2011), of which €10.2 billion was at fixed-rates and
€6.9 billion at floating rates (compared to €7.2 and €6.5 billion in 2011,
respectively). After management, the average cost of borrowings was
3.50%, with a fixed rate ratio of 60% (compared to 3.87%, with a fixed-
rate ratio of 53% in 2011).
INTEREST RATE HEDGES
Interest rate risk management instruments used by Vivendi include pay-
floating and pay-fixed interest rate swaps. Pay-floating swaps effectively
convert fixed rate borrowings to LIBOR and EURIBOR indexed ones.
Pay-fixed interest rate swaps convert floating rate borrowings into fixed
rate borrowings. These instruments enable the group to manage and
reduce volatility in future cash flows required for interest payments on
borrowings.
In 2012, Vivendi SA early terminated swaps (notional amount of
€300 million) belonging to the pay-floating interest rate swap portfolio
(aggregate notional amount of €750 million), maturing in 2017, thus
generating an unrealized gain of €19 million. Simultaneously, the balance
of this portfolio (notional amount of €450 million) was reclassified as
an economic hedge and Vivendi set up a pay-fixed interest rate swaps
for a notional amount of €450 million, generating an unrealized gain of
€37 million. These unrealized gains were recorded in charges and income,
directly recognized in equity, and recycled in financial income over the
remaining term of the borrowing hedged.