Foreign Currency risk: Group exposure to exchange rate (FX) risk derives primarily from existing or expected cash flows denominated in currencies other than the Euro (imports/exports) and from international investments. This risk is addressed in the context of policies approved by the Board of Directors at regular intervals.
FX risks are managed using natural hedges, FX options and FX forwards. Borrowings are denominated in the same currency as the assets that are being financed (where feasible), therefore creating a natural hedge for investments in foreign subsidiaries whose equity is exposed to FX conversion risk.
However, part of the financing of Group activities in the USA, Turkey, Egypt and Albania, is in different currencies than the functional ones. Their refinancing in local currencies is examined at regular intervals.
In Egypt, the financing in Yen had been hedged up to January 2014 via FX forwards in US dollar/yen, which were executed on behalf of the Group’s subsidiary Iapetos Ltd.
Also, Group company Titan Global Finance plc granted loans equal to €100 million in 2013 and €53.5 million in the first half of 2012 to Group company, Titan America LLC. Subsequently, Titan America LLC partially hedged the loan principal of €53.5 million via FX forward contracts.
The following table demonstrates the sensitivity of the Group’s profit before tax and the Group’s equity to reasonable changes in the US Dollar, Serbian Dinar, Egyptian Pound, British Pound, Turkish Lira and Albanian Lek floating exchange rates, with all other variables held constant:
Sensitivity analysis in foreign exchange rate changes
| (all amounts in Euro thousands) |
Foreign Currency
|
Increase/ Decrease of Foreign Currency vs. €
|
Effect on Profit Before Tax
|
Effect on equity
|
| Year ended 31 December 2013
|
USD
|
5%
-5%
|
-2,475
2,239
|
19,224
-17,393
|
|
RSD
|
5%
-5%
|
513
-464
|
2,193
-1,984
|
|
EGP
|
5%
-5%
|
2,874
-2,601
|
33,456
-30,270
|
|
GBP
|
5%
-5%
|
156
-141
|
295
-267
|
|
TRY
|
5%
-5%
|
-7
7
|
991
-897
|
|
ALL
|
5%
-5%
|
-117
106
|
2,165
-1,959
|
| Year ended 31 December 2012
|
USD
|
5%
-5%
|
-3,795
3,433
|
22,634
-20,478
|
|
RSD
|
5%
-5%
|
924
-836
|
2,060
-1,864
|
|
EGP
|
5%
-5%
|
3,993
-3,613
|
37,727
-34,134
|
|
GBP
|
5%
-5%
|
22
-19
|
181
-164
|
|
TRY
|
5%
-5%
|
311
-282
|
1,254
-1,134
|
|
ALL
|
5%
-5%
|
-477
431
|
2,441
-2,209
|
Note: a) Calculation of "Effect on Profit before tax" is based on year average FX rates; calculation of "Effect on Equity" is based on year end FX rate changes, b) the above sensitivity analysis is based on floating currencies and not on fixed.
Credit risk: The Group is not exposed to major credit risks. Customer receivables primarily come from a large, widespread customer base. The financial status of customers is constantly monitored by Group companies.
When considered necessary, additional collateral is requested to secure credit. Provisions for impairment losses are made for special credit risks. As at 31st December 2013, it is deemed that there are no significant credit risks which are not already covered by insurance as a guarantee for the credit extended or by a provision for doubtful receivables.
Credit risk arising from counterparties’ inability to meet their obligations towards the Group as regards cash and cash equivalents, investments and derivatives, is mitigated by pre-set limits on the degree of exposure to each individual financial institution. These pre-set limits are part of Group policies that are approved by the Board of Directors and monitored on a regular basis.