sain t-gobain annu al report 2008 annual report
sain t-gobain annu al report 2008 annual report
sain t-gobain annu al report 2008 annual report
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Currency risk<br />
The currency hedging policies described below could be<br />
inadequate to protect the Group against unexpected<br />
or sharper than expected fluctuations in exchange rates<br />
resulting from the current economic and financi<strong>al</strong><br />
market conditions.<br />
The Group’s currency risk management policy consists<br />
of hedging commerci<strong>al</strong> transactions carried out by subsidiaries<br />
in currencies other than their function<strong>al</strong> currency. Compagnie<br />
de Saint-Gobain and its subsidiaries may use currency<br />
options and forward contracts to hedge exposures arising<br />
from existing or forecast commerci<strong>al</strong> transactions.<br />
The subsidiaries enter into currency option contracts solely<br />
with Compagnie de Saint-Gobain, the Group’s parent company,<br />
which then hedges the risk on the market.<br />
Most forward contracts have short maturities, of around three<br />
months. However, hedges of orders may have maturities<br />
of up to two years. The majority of transactions are hedged<br />
invoice-by-invoice or order-by-order with Saint-Gobain<br />
Compensation, the entity set up to manage the Group’s<br />
currency risks. Saint-Gobain Compensation hedges<br />
these risks solely through the use of forward contracts.<br />
The system enables participating companies to hedge<br />
their commerci<strong>al</strong> positions as soon as the exposure arises.<br />
Saint-Gobain Compensation reverses <strong>al</strong>l of its positions<br />
with Compagnie de Saint-Gobain and does not therefore have<br />
any open positions.<br />
For the other companies, hedges are set up with Compagnie<br />
de Saint-Gobain upon receipt of the orders sent<br />
by the subsidiaries, or with the loc<strong>al</strong> Delegation’s cash pool or,<br />
failing that, with the subsidiaries’ banks.<br />
The Group’s exposure to currency risks is tracked by means<br />
of a monthly <strong>report</strong>ing system incorporating the subsidiaries’<br />
currency positions. At December 31, <strong>2008</strong>, 94% of the Group’s<br />
foreign exchange position was hedged. At that date,<br />
the net exposure of subsidiaries in currencies other<br />
than their function<strong>al</strong> currency was as follows:<br />
In millions of euro equiv<strong>al</strong>ents Long Short<br />
EUR 8 10<br />
USD 17 21<br />
Other currencies 1 2<br />
Tot<strong>al</strong> 26 33<br />
The following table shows the impact on net income<br />
of a 10% increase in the exchange rates<br />
of hedging currencies:<br />
Impact in € millions<br />
Net gain or loss<br />
EUR - 0.2<br />
USD - 0.5<br />
A 10% decrease in the above currencies at December 31, <strong>2008</strong><br />
would have an equiv<strong>al</strong>ent impact in the other direction,<br />
assuming that <strong>al</strong>l other variables were unchanged.<br />
Energy and raw materi<strong>al</strong>s risk<br />
The Group is exposed to the risk of changes in the price<br />
of raw materi<strong>al</strong>s used in its products and in energy prices.<br />
These prices have been particularly volatile in recent months<br />
and may remain so in the current financi<strong>al</strong> and economic<br />
environment. The energy hedging programs may be<br />
inadequate to protect the Group against significant<br />
or unforeseen price swings that could result from<br />
the current financi<strong>al</strong> and economic environment.<br />
To reduce its exposure to energy price fluctuations,<br />
the Group hedges part of its natur<strong>al</strong> gas purchases<br />
in the United States and certain European countries,<br />
as well as its fuel oil purchases in Europe, using swaps<br />
and options in the function<strong>al</strong> currencies of the entities<br />
whose exposures are hedged. The hedges are organized<br />
by steering committees made up of representatives<br />
of the Finance Department, the Purchasing Department<br />
(Saint-Gobain Achats) and the Gener<strong>al</strong> Delegations concerned.<br />
Hedges of gas and fuel oil purchases, other than fixed price<br />
purchases negotiated directly by the Purchasing Department,<br />
are set up by the Treasury and Financing Department,<br />
on the instructions of Saint-Gobain Achats.<br />
There is no hedging policy managed at Group level<br />
by a steering committee for other energy sources<br />
and other regions not mentioned above, because:<br />
MANAGEMENT REPORT<br />
121<br />
Saint-Gobain - <strong>2008</strong> Annu<strong>al</strong> Report