Financial risk and equity management

Financial risk and equity management

The Group's activities expose it to a variety of financial risks, particularly interest rate risk, foreign exchange risk, credit risk, liquidity risk and market risk.

Interest rate risk

The Group manages interest-rate risk to minimise the impact of potential rate fluctuations on financial expense related to debts, by contracting both derivative financial instruments and fixed-rate debt instruments.

The financing of infrastructure projects is linked to project flows. In this connection, when the project enters the operation phase the objective is to attempt to establish as far as possible a fixed interest rate or assure such a rate through hedging against possible interest rate fluctuations, thereby avoiding possible subsequent changes to the project's profitability as a result of such fluctuations. These hedging arrangements form part of the obligations frequently imposed by financial institutions. Note 9 on derivative financial instruments at fair value contains a breakdown of these hedges.

Where infrastructure project revenue is inflation linked, debt instruments are contracted at inflation-indexed interest rates.

The same approach is applied to long-term financing in the Group's other activities.

The accompanying table contains a breakdown of the Group's net cash position (total volume of financial debt net of cash and cash equivalents and long-term restricted cash linked to the debt), stating the percentage of the debt deemed to be hedged (at fixed rates or by derivatives):

Figures in millions of euros


It should be noted that BAA's hedged debt, referred to in the table above, includes derivatives with a notional value of 1,495 million GBP (2,033 million euro) which, although treated as economic hedges, do not qualify for hedge accounting.

As may be observed in the table, 81% of the Group's debt is hedged for interest rate risks. According to the above figures, a change in interest rates or inflation of 50 basis points in the current year would have had an impact on the income statement of -29 million euro in financial results (-27 million euro in infrastructure projects and -2 million in other companies) and an impact on net income of -16 million euro.

Note 20 provides a more detailed analysis by type of debt, based on the extent to which the interest rate risks are hedged.

In addition to the impact of exchange rate fluctuations on the assets and liabilities forming the net cash position, changes may arise in the values of the derivative financial instruments contracted by the Company (see Note 11). Such value differences are mainly taken to reserves.

Finally, the non-current financial assets addressed in Note 10 and the pension fund obligations referred to in Note 18 are also exposed to interest rate risks.

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