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Consolidated Financial Statements
3. FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
The group’s activities are exposed to a number of fi-
nancial risk factors: market risk (including currency
exchange risk, fair value risk associated to the interest
rate and price risk), credit risk, liquidity risk and cash
flow risks associated to the interest rate. The group
maintains a risk management program that focuses its
analysis on financial markets to minimise the potential
adverse effects of those risks on the group’s financial
performance.
Risk management is headed by the Financial Depart-
ment based on the policies approved by the Board of Di-
rectors. The treasury identifies, evaluates and employs
financial risk hedging measures in close cooperation
with the group’s operating units. The Board provides
principles for managing the risk as a whole and policies
that cover specific areas, such as the currency exchange
risk, the interest rate risk, the credit risk and the invest-
ment of surplus liquidity.
a) Market risk
i) Currency exchange risk
The currency exchange risk is very low, since the group
operates mainly in the Iberian market. Bank loans are
mainly in euros and acquisitions outside the Euro zone
are of irrelevant proportions.
Although the Group holds investments outside the
euro-zone in external operations, in Angola, due to the
reduced size of the investment, there is no significant
exposure to currency exchange risk. Angolan branch
loans in the amount of 1.875.000 USD does not provide
material exposure to currency exchange rate due to its
reduced amount and to the strong correlation between
USA dollar and local currency. The remaining loans are
in local currency, the same as the revenues.
ii) Price risk
The group is not greatly exposed to the merchandise
price risk.
iii) Interest rate risk (cash flow and fair value)
Since the group does not have remunerated assets
earning significant interest, the profit and cash flow
from financing activities are substantially independent
from interest rate fluctuations.
The group’s interest rate risk follows its liabilities, in par-
ticular long-term loans. Loans issued with variable rates
expose the group to the cash flow risk associated to in-
terest rates. Loans with fixed rates expose the group to
the risk of the fair value associated to interest rates. At
the current interest rates, in financing of longer matu-
rity periods the group has a policy of totally or partially
fixing the interest rates.
The unpaid debt bears variable interest rate, part of
which has been the object of an interest rate swap. The
interest rate swap to hedge the risk of a 20 million euros
loan has the maturity of the underlying interest and the
repayment plan identical to the terms of the loan. More-
over, the Group has cash and cash equivalents covering
about 35% of the loans in which the remuneration cov-
ers interest rate changes on the debt.
Based on simulations performed on 31 December 2012,
an increase of 100 basis points in the interest rate,
maintaining other factors constant, would have a nega-
tive impact in the net profit of 200.000 euros.
b) Credit risk
The group’s main activity covers sales paid in cash or by
debit/credit cards. As such, the group does not have rele-
vant credit risk concentrations. It has policies ensuring that
