Ubisoft 2006 Annual Report Download - page 88

UBISOFT • FINANCIAL REPORT 2007
Note 15 Borrowings
Borrowings break down as follows:
To limit interest rate and exchange rate risks resulting
from the financing needs of its activities, the group uses
certain financial instruments:
• Interest rate risk
The management of interest rate risk is aimed mainly at
minimizing the cost of the group's borrowings and at redu-
cing exposure to this risk. In this regard, the group gives
priority to fixed-rate loans for long-term financing needs
and variable-rate loans to finance specific needs related to
an increase in working capital during particularly active
periods.
• Foreign exchange risk
The group is exposed to foreign exchange risk on its ope-
rating cash flow and its investments in its foreign subsidia-
ries. The group protects only its positions related to its
operating cash flow in the major currencies (i.e. the US
dollar, Canadian dollar, pound sterling and Australian dol-
lar). The strategy is to hedge one fiscal year at a time,
which means that the hedge period does not exceed 15
months.
The group relies mainly on natural hedges resulting from
two-way transactions (i.e. development expenses in foreign
currencies offset by royalties received from subsidiaries in
the same currency). For non-hedged balances and non-
commercial transactions (i.e. internal loans in foreign cur-
rencies), the parent company borrows in these currencies
or sets up forward sales contracts or options.
Covenants
Under the terms of the syndicated loan and bilateral line
for €20 million, the company is required to respect certain
financial ratios (known as covenants).
The following covenants must be respected:
Besides, the company signed in 2006/2007, a bilateral line
for €10 million which has to respect the same covenants
but with a different ratio of 0.9 for net debt on equity.
All covenants are calculated on the basis of the consolida-
ted year-end financial statements based on IFRS as of
March 2006.
At March 31, 2007, the company was in compliance with
all of these ratios and expected to remain so during the
2007/2008 fiscal year.
03.31.07 03.31.06
Bond debentures - 141,933
OCEANE - 89,854
OBSAR - 52,079
Accrued interest 286 1,150
Foreign currency advances 6,508 5,432
Bank overdrafts and short-term loans 41,391 50,664
Bank loans 23,254 2,840
Borrowings resulting from restatement of leases 141 316
Borrowings 71,580 202,335
Fixed-rate debt 6,649 90,859
Variable-rate debt 61,677 108,636
Zero-rate debt 3,254 2,840
Long-term debt 22,706 54,981
Short-term debt 48,874 147,354
2007/2008 2006/2007
Net debt restated to reflect
assigned receivables/equity
restated to reflect goodwill < 0.85 0.9
Net debt restated to reflect
assigned receivables/EBITDA < 1.5 1.5