Ubisoft 2007 Annual Report Download - page 80

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UBISOFT • FINANCIAL REPORT 2008
Note 15 Borrowings
Borrowings break down as follows:
Note 16 Risks management
The Group uses certain financial instruments to limit the
interest rate and foreign exchange risks resulting from the
financing needs generated by its business:
Interest rate risk
Interest rate risk management is primarily designed to mini-
mize the cost of the Group's borrowings and at reducing
exposure to this risk. In this regard, the Group uses primarily
fixed rate loans for its long-term financing needs and va-
riable rate loans to finance specific needs related to increases
in working capital during particularly busy periods.
As of March 31, 2008, the Group’s net debt included a va-
riable rate borrowing and bank overdrafts which, given the
Group’s positive net cash position, are used essentially to
finance the high year-end capital requirement as a result of
the highly seasonal nature of the business.
In view of the financial position as of March 31, 2008, finan-
cial income and expense and sensitivity to changes in interest
rates were as follows:
Ubisoft debt structure (in thousands of euros):
Foreign exchange risk:
The Group is exposed to foreign exchange risk on its inter-
company operating cash flow and its investments in its fo-
reign subsidiaries.
The exchange risk mainly exists on financial debt labeled/
denominated in CAD & sterling.
The Group only hedges its exposures on inter-company
operating cash flows in the main material foreign currencies
(US dollar, Canadian dollar, pound sterling and Australian
dollar). Its strategy is to hedge only one fiscal year at a time,
so that the hedging horizon never exceeds 15 months.
The Group first uses natural hedges resulting from transac-
tions in the opposite direction (development expenses in fo-
reign currencies offset by royalties from subsidiaries in the
same currency). The parent company uses foreign currency
borrowings, forwards or foreign currency options to hedge
any residual exposures and non-commercial transactions
(such as inter-company loans in foreign currencies).
As of March 31, 2008 the Company had hedged USD43 mil-
lion, CAD17 million and JPY100 million using forwards and
foreign currency borrowings.
The Company remains exposed to exchange rate fluctua-
tions, especially on its sales in the US and Canada where
transaction volumes are high.
03.31.08 03.31.07
Accrued interest 283 286
Advances 0 6,508
Bank overdrafts and short-term loans 55,732 41,391
Bank borrowings 23,323 23,254
Borrowings resulting from restatement of leases 82 141
Borrowings 79,420 71,580
Fixed rate liabilities 83 6,649
Variable rate liabilities 76,014 61,677
Non interest-bearing liabilities 3,323 3,254
Long-term liabilities 23,323 22,706
Short-term liabilities 56,097 48,874
< 1 year > 1 year
Financial liabilities
UK bank borrowing 20,000
Canadian bank borrowing 3,323
Financial assets
Cash (65,241)
Investment securities (107,940)
Net position before hedging (173,181) 23,323
Liabilities Type of Rate Nominal Interest 1% Difference
rate p.a. change
Bank borrowings Variable 4.716% 20,000 943.2 1,143 200.0
Cash Variable 3.94% (65,241) (2,569.0) (3,221) (652.4)
Investment securities Variable 4.20% (107,940) (4,536.1) (5,616) (1,079.4)
Total (153,181) (6,161.9) (1,531.8)