4.3.1 Liquidity risks
The Group is subject to various factors and events that could cause a liquidity risk; the major ones identified by Steria to date are listed below:
z The Group’s financial liabilities:
Repayment of said liabilities might expose the Group to liquidity risk.
At December 31, 2013, the principal financial liabilities were:
− the five year multicurrency credit agreement signed on June 23, 2011,
− the bond subscribed by institutional investors on April 12, 2013 and maturing in July 2019,
− the multi-year securitisation plan for trade receivables for a 5-year duration established in December 2013.
En 2013, the Group’s liquidity risk was reduced thanks to new financing plans, source diversification and extended terms with differing maturity dates.
This financing structure and associated covenants are described in section 5.2.5 of this document, notes 4.10 and 4.11 of the notes to the consolidated financial statements.
z Operating conditions:
The important structural cyclical working capital needs, uncertainty regarding the settlement of invoices within the contractually allowed
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period and operational problems weighing on the margins may, under certain conditions, generate risks on the Group’s liquidity.
z The changes to the pension fund deficit:
This development could, under certain conditions, lead the Group to make additional contributions that impact its cash position. Risks related to pension funds are described in 4.3.6 of this document.
z The ability to mobilise financial resources intra-group:
Certain legal and fiscal constraints may cause the Group not to be able to mobilise the available financial resources under the desired conditions in certain countries or legal entities. This applies specifically to the case of Steria in India where the Group has significant cash.
The Group has performed a specific liquidity risk review and considers itself able to meet is upcoming maturities.
4.3.2 Interest rate risks
The Group is subject to interest rate risks in relation to both financial assets and financial liabilities.
The Group’s aim is to protect itself against interest rate fluctuations by covering part of the floating-rate debt and investing its liquidities over periods of less than three months.
The derivative financial instruments used to cover the debt are interest rate swap contracts or options, which may or may not be eligible for hedge accounting. The financial assets are all at floating rate.
The eligible counterparties for interest rate hedging and investments are leading financial institutions which belong to the Steria banking pool. These financial instruments are managed by the Group Finance Department.
All interest rate coverage for the Group is carried out through the Parent Company (Groupe Steria SCA).
This point is addressed in note 4.17 of the notes to the consolidated financial statements.
4.3.3 Foreign exchange risks
The Group is subject to two main types of risks linked to fluctuations in the exchange rates. Firstly, the risk of converting the Group’s consolidated financial statements into individual financial statements for business conducted in countries where the euro is not the functional currency. Secondly, the transaction risk linked to purchases and sales of services, where the transaction currency is different from that of the country where the service is entered in the accounts.
As a part of its general risk management policy, the Group systematically covers business risks that constitute significant risks for the Group as a whole. To manage its exposure to foreign exchange risks, the Group uses derivative instruments.
The Group Finance Department provides this hedging via firm or optional instruments concluded by mutual agreement with first-class counterparties, which belong to the banking pool.
The Group’s policy is not to conduct speculative transactions on financial markets.
Finally, the structure of the Group’s indebtedness, part of which is denominated in GBP, provides a natural, if only partial, hedging against the currency translation risk to the net assets, recognised directly on the balance sheet.
Foreign exchange risk hedging mainly relates to GBP/INR and EUR/PLN hedges for the Group’s production platforms in India and Poland This point is addressed in note 4.17 of the notes to the consolidated financial statements.
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Financial risks
4.3.4 Counterparty risks and credit risks
The Group controls its counterparty risk on investments and foreign currency and interest rate hedging operations by selecting leading financial institutions and by diversifying the counterparties.
The Group therefore considers that it only has a minor exposure to bank credit risks.
4.3.5 Investment risks – Equities
The Group’s policy is to invest its liquidities for less than three months with only first-class counterparties.
The Group does not have any shares within the framework of its investments and does not have any investments in listed shares.
However, the Group does have treasury shares and available-for-sale assets.
The Group considers that it is exposed to equity risk on treasury shares mainly held by the UK trusts included in the scope of consolidation for a total of 1,432,361 shares and by the Group’s Parent Company, Groupe Steria SCA (35,221 shares). Their market value as at December 31, 2013 was €20,986 thousand, calculated using the most recent closing share price (€14.30).
This point is addressed in notes 4.5 and 4.11 of the notes to the consolidated financial statements.
4.3.6 Risks associated with commitments to pensions (“pension funds”)
This point is addressed in note 4.12 of the notes to the consolidated financial statements.
Steria provides pension benefits in several countries in which it operates.
Such benefits are usually provided by associated pension funds or directly by the Group. These pensions are either based on defined benefits (where the individual is guaranteed a certain percentage of his salary as a pension) or on defined contributions (where the pension is determined based on the investment returns experienced over the contribution period). Defined benefit plans are recorded in Steria’s financial statements in accordance with IAS 19.
In the UK the assets of the defined benefit pension plans are usually held in separate trustee administered funds, and employees are entitled to retirement benefits based on their salary and length of service.
In the case of defined benefit pension plans, the employer is obliged to cover any deficit between the value of the fund assets and the pension obligations to be paid.
Since 2010 defined benefit plans have been replaced by defined contribution plans. The defined benefit plans are now maintained only in connection with a few outsourcing projects relating to the Public Sector.
The contributions paid by the Group in the United Kingdom in 2013 were based on the most recent funding valuations of the principal funds in the UK, i.e.:
Fund Valuation date Next valuation date *
Steria Retirement Plan (SRP) March 2010 March 2013
Steria Management Plan (SMP) March 2010 March 2013
Steria Pension Plan (SPP) December 2009 December 2012
* Under the three-year renegotiations procedure for pension funds, discussions with trustees relative to the future contributions are still pending as at the publishing date of this document. In accordance with the law and regulatory provisions in relation to pension funds, an agreement between the parties must be found within 15 months after the valuation date, that is to say, by March 31, 2014 for the SPP and June 30, 2014 for the SRP & SMP.
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A breakdown of the asset portfolio of the UK pension funds at December 31, 2013 is shown below (based on average market values):
2013 2012
Shares 34% 37%
Bonds 46% 48%
Property/Infrastructure 13% 9%
Other assets 7% 6%
Total 100% 100%
For further information, see note 4.12 to the consolidated financial statements in section 5.2.5 of this document addressing asset breakdown and obligations of defined benefit pension plans
The current value of pension obligations for schemes with defined benefits is calculated based on actuarial assumptions and is therefore subject to changes in macro-economic conditions. The main factors concerned are long-term interest rates, inflation and mortality.
As an illustration, a 0.25 point reduction in the discount rate would cause a €63.7 million increase in commitments.
Assets invested in different asset classes (including shares) are subject to fluctuations in financial markets. As an illustration, a 10% drop in the value of assets would cause a €114.4 million reduction.
Deficits resulting from these variations in assets and/or liabilities, which do not necessarily go in the same direction, and any changes in accounting standards or regulations, could lead to an increase in commitments and impact the Group’s financial statements.
4.3.7 Risks linked to amortisation of goodwill
In compliance with current standards, each year the Group conducts fair value tests to ensure that the value of the assets included on the balance sheet is consistent with the Group’s future economic performance.
Since it has led in recent years to a sustained acquisition policy, with the acquisition of Bull’s European IT activities in 2002, Mummert Consulting in Germany in 2005 and more recently Xansa in the UK and India in
October 2007, the Group has posted on its balance sheet in an amount of goodwill valued at €763 million at December 31, 2013. This amount is subject to periodic impairment tests to verify that there is no need to record impairment charges.
This point is addressed in note 4.17 of the notes to the consolidated financial statements.
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