Debt Investors

Given the Group’s operating activities, we are exposed to foreign currency risk. Our foreign currency exposures arise from adverse changes in exchange rates between the Euro, the US dollar and the currencies in our non-euro countries. Transactional exposures arise mainly from raw materials purchased in currencies other than the functional currency of the country, which can lead to higher cost of sales in that functional currency.

Translational exposures arise as many of our operations have functional currencies other than the Euro, and any change in the functional currency against the Euro impacts our consolidated income statement and balance sheet when results are translated into Euros.

Our treasury policy requires the hedging of rolling 12-month forecasted transactional exposures within defined minimum (25%) and maximum (80%) coverage levels. Where available, we use derivative financial instruments to reduce our net exposure to currency fluctuations.

The Group is exposed to market risk arising from changing interest rates, primarily in the Euro zone. Periodically we evaluate the desired mixture of fixed and floating rate liabilities and modify the interest payments based on the desired mixture of debt. We also use interest rate derivatives to manage our interest rate cost.

The Group is exposed to market risks arising from the fluctuations in the prices of key raw materials. For a number of raw materials, where there are available tools to actively manage price risks, the relevant provisions are included in the Treasury Policy. Treasury and Procurement Departments are jointly responsible for applying the relevant policies.

Based on the Treasury Policy, hedging activities are conducted for a 36  month rolling horizon. Treasury Policy dictates minimum and maximum coverage levels per time bucket, with a ‘layered approach’ (gradually lower hedge percentage for longer tenors) being applied. Different minimum and maximum hedge levels are applicable for each underlying commodity. Hedging activities are conducted through financial derivatives – where available – or through relevant provisions in the physical supply contracts.

Credit risk is controlled by a restrictive policy as to the choice of potential counterparties for treasury transactions. Our credit risk is managed by establishing approved counterparty and country limits, detailing the maximum exposure that we are prepared to accept with respect to individual counterparties or countries. The limits are reviewed and monitored on a regular basis.

Our general policy is to retain a minimum amount of liquidity reserves in the form of cash on our balance sheet if and when required, while having an access to Group’s committed facilities, to ensure that we have cost-effective access to sufficient financial resources to meet our funding requirements. These include the day-to-day funding of our operations as well as the financing of our capital expenditure program.

In order to mitigate the possibility of liquidity constraints, we endeavor to maintain a minimum of €250 million of financial headroom. Financial headroom is defined as cash plus committed funding facilities less any short-term borrowings and forecasted cashflow requirements.