The approach applied for sustainability reporting, which identifies and assesses the potential risks and gross impacts of VINCI’s activities without taking account of the risk management measures in place, differs from the analysis presented in this chapter, which assesses the residual risks that may be faced by the Group.
1.7.2 Financial risks
The management of financial risks is detailed in Note J.27 to the consolidated financial statements, pages 389 to 394.
Financial risks
| Risk identification |
Risk management procedures |
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a) Liquidity risk relating in particular to:
- obligations to repay existing debt;
- commitments to finance investment programmes of concession companies;
- general requirements of the Group, relating in particular to acquisitions of new companies;
- some financing agreements including early repayment clauses applicable in the event of non-compliance with financial covenants.
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a) Liquidity risk relating in particular to:
- obligations to repay existing debt;
- commitments to finance investment programmes of concession companies;
- general requirements of the Group, relating in particular to acquisitions of new companies;
- some financing agreements including early repayment clauses applicable in the event of non-compliance with financial covenants.
Risk management procedures
- Maintenance of credit ratings (see c below)
- Extension of debt maturity
- Diversification of financing sources
- Centralised cash management
- Maintenance of a minimum level of centrally managed net cash at all times
- Arrangement of confirmed and undrawn backup credit facilities
- Implementation of a Group reporting procedure to monitor changes in financial covenants and negotiate if necessary with lenders to prevent a potential event of default triggered by non-compliance with covenants
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b) Market risk
- Interest rate risk: changes in interest rates and spreads applied by lenders
- Exchange rate risk for activities and investments outside the eurozone
- Commodity risk for supplies (electricity, gas, bitumen, fuel, concrete, metals, timber, solar panels, etc.) and on revenue streams for certain customers
- Equity risk: investments in listed entities, treasury shares, assets covering retirement benefit obligations, etc.
- Risks associated with inflation and market volatility
- Small scale of capital markets in emerging countries
- Currency transferability and non-exchangeability risks
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b) Market risk
- Interest rate risk: changes in interest rates and spreads applied by lenders
- Exchange rate risk for activities and investments outside the eurozone
- Commodity risk for supplies (electricity, gas, bitumen, fuel, concrete, metals, timber, solar panels, etc.) and on revenue streams for certain customers
- Equity risk: investments in listed entities, treasury shares, assets covering retirement benefit obligations, etc.
- Risks associated with inflation and market volatility
- Small scale of capital markets in emerging countries
- Currency transferability and non-exchangeability risks
Risk management procedures
- Centralisation of market transactions (front office)
- Policy on conversion of net debt from fixed to floating rate (in line with an Ebitda multiple), with the remainder of net debt maintained at fixed rate to better manage the Group’s borrowing costs
- Policy on the hedging of transactional exchange rate risk (always hedged) and asset-related exchange rate risk (relevance analysed on an individual currency basis)
- Management on a case-by-case basis of commodity price risk (advances at the start of operations, agreements with suppliers, use of derivative financial instruments)
- Periodic review of assets covering retirement benefit obligations
- Negotiation with customers with multi-currency contracts to limit the risk of balances in exotic, non-transferable, or non-exchangeable currencies
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c) Credit rating downgrade risk for the Group entities assigned such ratings as a result of:
- events materially affecting the financial position of VINCI or its subsidiaries,
- a significant change in the Group’s business mix,
- changes in methodology introduced by rating agencies.
The Group’s financing terms could thus become dearer and its access to financing could even be made more difficult.
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c) Credit rating downgrade risk for the Group entities assigned such ratings as a result of:
- events materially affecting the financial position of VINCI or its subsidiaries,
- a significant change in the Group’s business mix,
- changes in methodology introduced by rating agencies.
The Group’s financing terms could thus become dearer and its access to financing could even be made more difficult.
Risk management procedures
- Monitoring procedure for financial ratios (both actual and projected) tracked by the agencies and contributing to the determination of the rating
- Regular dialogue with rating agencies and tracking of any agency methodology changes that might have an impact on the Group’s rating
- When the Group is considering a major acquisition, submission of financial projections to rating agencies for their opinion regarding the potential impact on the rating assigned to the Group
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| d) Counterparty risk stemming from contracts and financial instruments contracted with banks and other financial institutions, should the debtor be unable to honour all or part of its commitment |
d) Counterparty risk stemming from contracts and financial instruments contracted with banks and other financial institutions, should the debtor be unable to honour all or part of its commitment Risk management procedures
- Centralisation of cash management and financing requirements of business lines
- Cash investments in short-term and liquid vehicles with banking partners (minimum rating criteria) and in money market UCITS, with centralised monitoring of exposure limits and control ratios
- Diversification of counterparties when setting up financial instruments
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