The Group leased certain of its office facilities and datacenters under financial leases. The average lease term is 5 years (2013: 5 years). The Group has options to purchase the assets for a nominal amount at the end of the lease terms. Obligations under finance leases are secured by the lessors’ title to the leased assets.
Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 3.5% to 5.5% (2012: 3.75% to 6%) per annum.
An overview of the maturity of the leasing obligations of the Group is given below.
Minimum lease payments (In € millions)
December 31, 2014
December 31, 2013
Less than one year 45.1 12.6
Between one and two years 34.2 7.3
Between two and three years 11.3 5.0
Between three and five years 4.1 2.8
More than five years 6.5 7.6
Less: future finance expenses (6.6) (3.4)
Present value of minimum lease
payments 94.6 34.8
31 December, 2014
31 December, 2013 Included in the consolidated
financial statements as:
Current borrowings (note 15) 45.1 11.4
Non-current borrowings (note 15) 49.4 23.4
Total 94.6 34.8
ALTICE S.A.
Notes to the consolidated financial statements
123 17 Financial risk factors
In the course of its business, the Group is exposed to a number of financial risks: credit risk, liquidity risk, market risk (including foreign currency risk and interest rate risk) and other risks (including equity price risk and settlement risk). This note presents the Group’s objectives, policies and processes for managing its financial risk and capital.
Financial risk management is an integral part of the way the Group is managed. The Board of Directors establishes the Group’s financial policies and the Chief Executive Officer establishes objectives in line with these policies.
The Group is not subject to any externally imposed capital requirements.
17.1 Credit risk
The Group does not have significant concentrations of credit risk. The credit risk may arise from the exposures of commitments under a number of financial instruments with one body or as the result of commitments with a number of groups of debtors with similar economic characteristics, whose ability to meet their commitments could be similarly affected by economic or other changes.
The Group’s income mainly derives from customers in Israel, in the French Overseas Territories and in Europe (France, Belgium, Luxembourg, Portugal and Switzerland). The Group regularly monitors its customers’
debts and provisions for doubtful debts are recorded in the consolidated financial statements, which provide a fair value of the loss that is inherent to debts whose collection lies in doubt. Additionally, our retail customers represent a major portion of our revenues and these clients generally pay in advance for the services they buy for us, or in our more significant regions, such as France, our retail customers generally pay using direct debit, a practice that reduces our credit risk.
The Group does not have significant concentration of credit risk, as a result of the Group’s policy, which ensures that the sales are mostly made under standing orders or via credit cards.
17.2 Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which manages liquidity risk by maintaining adequate reserves, banking facilities and reserves borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The Group has a strong track record of driving operating free cash flow generation and specializes in turning around struggling businesses and optimizing the cash generation of existing businesses. As all our external debt is issued and managed centrally, executive Directors of the Group have a significant amount of control and visibility over the payments required to satisfy our obligations under the different external debts.
Additionally, the Group has access to undrawn revolving credit facilities for an aggregate amount of
€1,044.9 million (notwithstanding an additional €501 million facility which can be activated as and when required) to cover any liquidity needs not met by operating cash flow generation.
17.3 Market risks
The Group is exposed to risk from movements in foreign currency exchange rates, interest rates and market prices that affect its assets, liabilities and anticipated future transactions.
17.3.1 Interest rate risk
Interest rate risk comprises the interest price risk that results from borrowings at fixed rates and the interest cash flow risk that results from borrowings at variable rates.
ALTICE S.A.
Notes to the consolidated financial statements
124
The Company has an exposure to changes of interest rate in the market, deriving from long-term loans that have been received and which bear variable rate interest.
Interest structure of non-current financial debt (including interest effects of derivatives):
December 31, 2014
December 31, 2013 (In millions €)
Financial debt at fixed rates ... 17,697.1 2,843.1 Financial debt at variable rates ... 4,915.2 1,345.5 TOTAL ... 22,612.3 4,188.6
The Group’s proportion of variable rate debt decreased from 32.1 % for the year ended December 31, 2013 to 21.7% for the year ended December 31, 2014. Issuing new fixed income debt is part of the Group’s risk management strategy.
The Group has entered into different hedging contracts to manage interest rate risk related to debt instruments with variable interest rates. See note 15.8 for more information.
17.3.2 Israeli CPI risk
The Group has borrowed from banks and issued debentures that are linked to the changes in the Israeli CPI. Also, the Group has deposits and gave loans that are linked to the changes in the Israeli CPI. The net amount of the financial instruments that are linked to the Israeli CPI and for which the Company is exposed to changes in the Israeli CPI amounted to approximately €180.5 million (NIS 853 million) as of December 31, 2014 (€187.0 million/NIS 895 million as of December 31, 2013).
17.3.3 Foreign currency management
1. Foreign currency sensitivity analysis
The Group is exposed to foreign currency risk from transactions and translation. Transactional exposures are managed within a prudent and systematic hedging policy in accordance with the Company’s specific business needs. Translation exposure arises from the consolidation of the financial statements of foreign operations in euros, which is, in principle, not hedged. The Group’s objective is to manage its foreign currency exposure through the use of currency forwards, futures and swaps.
December 31, 2014 Israeli
Shekel
Swiss Franc
Dominican Pesos Total (In millions €)
Profit for the year
Increase of 10% in exchange rate
... 3.4 0.3 (0.7) 2.9 Decrease of 10% in exchange
rate
... (3.4) (0.3) 0.7 (2.9) Equity
Increase of 10% in exchange rate
... 113.3 1.4 147.8 262.5 Decrease of 10% in exchange
rate
... (113.3) (1.4) (147.8) (262.5)
ALTICE S.A.
Notes to the consolidated financial statements
125
December 31, 2013 Israeli
Shekel
Swiss Franc Total (In millions €)
Profit for the year
Increase of 10% in exchange rate
... (12.8) (0.2) (12.9) Decrease of 10% in exchange
rate
... 12.8 0.2 12.9 Equity
Increase of 10% in exchange rate
... 5.6 2.1 7.6 Decrease of 10% in exchange
rate
... (5.6) (2.1) (7.6)
On the basis of the analysis provided above, the Board of Directors believes that the Group’s exposure to FX rate risks is limited.
Exchange differences recorded in the income statement represented a loss of €137.7 million in 2014 (2013: profit of €66.5 million). They are allocated to the appropriate headings of expenses by nature.
The Group estimates that a 10% variation of foreign currencies against euro parity is a relevant change of variables and reasonably possible risk in a year and the presented above allows to assess the impact of a 10%
increase of foreign currencies against euro on net result and reserves. A 10% decrease would have a symmetrical impact with the same amounts but in the opposite direction.
17.3.4 Price risk
The Group has investments in listed financial instruments, shares and debentures that are classified as available-for-sale financial assets and financial assets at fair value through profit or loss in respect of which the Group is exposed to risk of fluctuations in the security price that is determined by reference to the quoted market price. As of December 31, 2014, the carrying amount of these investments was €5.5 million (€8.4 million as of December 31, 2013).
17.4 Gearing computation
For the year ended December 31, 2014, the Company had a net equity position of €5,196.3 million, thus resulting in a gearing ratio of 4.1
December 31, 2014
December 31, 2013 (In millions €)
Net Debt ... 22,612.3 4,188.9 Cash and cash equivalents ... (1,563.6) (61.6) Total equity ... 5,196.3 95.3 Gearing ... 4.1 43.3
ALTICE S.A.
Notes to the consolidated financial statements
126 17.5 Fair value of financial assets and liabilities
17.5.1 Fair value of the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis
Some of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).
Financial assets/
Financial liabilities Fair value as at
Fair value
(1) A gain of €4.6 million was recognized in the statement of comprehensive income related to this investment.
17.5.2 Reconciliation of Level 3 fair value measurements Available
ALTICE S.A.
Notes to the consolidated financial statements
127 18 Trade and other payables
December 31, 2014
December 31, 2013 (In millions €)
Trade payables ... 4,045.0 392.9 Corporate and social security contributions ... 472.8 29.8 Indirect tax payables ... 559.0 - Other payables ... 138.9 94.3 Amounts due to related parties ... 0.1 0.1 Deposit and guarantee received ... - 0.4 Total current payables ... 5,215.8 517.4 Trade payables ... 4.8 13.0 Other payables ... 21.1 16.0 Total non-current payables... 25.9 29.0 The increase in trade and other payables is mainly attributable to the acquisitions of Numericable-SFR and other entities in the Dominican Republic.