Get Adobe Flash player

Currency and interest rate risks

A variety of financial instruments, including swaps, caps and forwards, are used to manage and hedge interest rate and currency risks arising in the normal course of business. Financial instruments are used to support Group investment, financing and hedging policies, to help manage debt and to minimize the risks on business transactions. GTM software is used to monitor the breakdown of debt between fixed and floating rate and by currency, as well as to generate reporting schedules, with integrated online access to Reuters and Bloomberg databases.

Management of currency risks

Long-term investment policy

When Accor SA invests directly or indirectly in a foreign subsidiary, the investment is generally made in the subsidiary’s local currency. These are very long-term positions and so far, the policy has been not to hedge the related currency risk.

Financing

An internationally recognized signature allows Accor to raise various forms of financing either through banks or directly through private placements and bond issues.

From time to time, the Group also takes advantage of market opportunities to raise financing in a given currency and at a given rate of interest and then using a swap to convert the facility into the currency and interest rate required to finance business needs (see note 29C to the consolidated financial statements, page 238 ).

Generally, the Group’s policy is to finance its assets and operating requirements in the currency of the country concerned in order to create a natural hedge and avoid any currency risk.

By using these financial instruments, the Group is also able to optimize the cost of its resources and use subsidiaries’ excess cash without taking any currency risks.

Other currency hedges

Currency hedges are rarely used other than for financing operations as the volume of intercompany transactions in foreign currencies is limited and revenues are denominated in the same currency as the related operating costs.

Corporate governance

RISK MANAGEMENT

3

The Group does not hedge currency translation risk.

On December 31, 2012. The volume of forward sales and purchases of foreign currencies represented €77 million and €303 million respectively. All of these futures expire in 2013.

Accor is not exposed to any currency risk on transactions or investments in currencies other than the Group’s functional currency.

Management of interest rate risks

After currency hedging, 90% of consolidated borrowings are denominated in euros, with 90% at fixed rates and 10% at floating rates. The average maturity of fixed-rate debt is 2.6 years. An analysis of the Group’s exposure to interest rate risks before and after hedging is provided in note 29C to the consolidated financial statements on page 238 . Target breakdowns between fixed and floating rate debt are determined separately for each currency, giving due regard to anticipated trends in interest rates and to changes in the composition of debt as a result of new borrowings and the repayment of existing borrowings.

The target breakdowns are reviewed at regular intervals and new targets are set for future periods by senior management. The related financing strategy is implemented by the Corporate Treasury, Financing and Credit Management Department.

In view of the average 5.1-month maturity, cash is invested at variable rates.

The most commonly used instruments are interest rate swaps and caps, which are contracted with banks rated investment grade based on the model recommended by the French Banking Federation.

On December 31, 2012, the volume of interest rate hedges represented €356 million, of which €352 million corresponded to fixed-rate swaps where the Group is the euro borrower and which mature in 2013.

Accor does not conduct any trading transactions and has no plans to engage in this type of activity. Neither the parent company nor the Group has any open currency or interest rate positions that would be likely to expose the Group to significant risks.