Ubisoft 2016 Annual Report Download - page 47

Governance, risks, riskmanagement andinternalcontrol
3
Report of the Chairman of the Board of Directors on corporate governance, internal control andriskmanagement
3.1.2.3 Market risks
FINANCIAL RISKS
In the course of its business, the Group is exposed to varying degrees
of fi nancial risk (foreign-exchange, fi nancing, liquidity, interest-
rate), counterparty risk and equity risk.
Group policy consists of:
♦ minimizing the impact of its exposure to market risks on both
its results and, to a lesser extent, its balance sheet;
♦
tracking and managing this exposure centrally whenever
regulatory and monetary circumstances allow;
♦ using derivatives for hedging purposes only.
The risk management policy is described in the section on the
Treasury Department in section 3.1.3.3 “Control activities” of the
Chairman’s internal audit report. Additional information and fi gures
on exposure to these different risks are also detailed in Note 15 to
the consolidated fi nancial statements.
Foreign exchange risk
In light of its international presence, the Group may be exposed to
exchange-rate fl uctuations, in the following three circumstances
in particular:
♦
in the course of its operating activities: sales and operating
expenses of Group subsidiaries are largely denominated in
local currency. However, some transactions such as license
agreements and intercompany invoicing are denominated in
another currency. The operating margin of the subsidiaries
concerned may therefore be exposed to fl uctuations in exchange
rates involving their operational currency;
♦ in the course of its fi nancing activities: in line with its policy of
centralizing risks, the Group has to manage fi nancing and cash
in various currencies;
♦
during the process of translating the accounts of its subsidiaries
from foreign currencies into euros: operating profi t (loss) from
continuing operations may be generated in currencies other than
the euro. As a result, fl uctuations in foreign currency exchange
rates against the euro may have an impact on the Group’s income
statement. These fl uctuations also affect the carrying amount
of assets and liabilities denominated in foreign currencies and
appearing in the consolidated balance sheet.
The Group fi rst uses natural hedges provided by transactions in
the other direction (development costs in foreign currency offset
by royalties from subsidiaries in the same currency). The parent
company uses foreign currency borrowings, forward sales or
foreign-exchange options to hedge any residual exposures and non-
commercial transactions (such as intercompany loans in foreign
currencies).
The sensitivity of Group earnings to changes in the value of its main
currencies is described in Note 15 to the consolidated fi nancial
statements.
IMPACT OF A +/- 1% FLUCTUATION IN THE MAIN CURRENCIES ON SALES AND OPERATING INCOME
Currency Impact on sales(1) Impact on operating income(1)
USD 6,120 2,748
GBP 1,104 809
CAD 681 (1,352)
(1) Inthousands of euros for the 2015/2016 fi nancial year
IMPACT OF A +/- 1% FLUCTUATION IN THE MAIN CURRENCIES ON GOODWILL AND BRANDS
Currency Impact on operating income(1)
USD 389
GBP 543
CAD 67
(1) Inthousands of euros for the 2015/2016 fi nancial year
Financing and liquidity risk
In the course of its operating activities, the Group has no recurrent
or signifi cant debts. Operating cash fl ows are generally suffi cient
to fi nance operating activities and organic growth. However, the
Group issued bonds and implemented a commercial paper program
as part of the diversifi cation of its fi nance sources and may need
to increase its debt by using credit lines to fi nance merger and
acquisition activities.
Moreover, to fi nance temporary requirements related to the
increase in working capital during especially busy periods, as at
- Registration Document 2016 45