Liquidity risk:
Liquidity is managed by employing a suitable mix of liquid cash assets and long term committed bank credit facilities. The Group monitors the ratio of unutilized long term committed bank credit facilities and immediately available cash over short term debt on a monthly basis. As at 31st December 2012, the ratio of the Group’s committed long term unutilized facilities and cash over short term debt stood at 4.89 times.
The Parent Company is registered and the Group undertakes part of its activities in a Eurozone country under an Economic Adjustment and Structural Reforms Program. If the Program fails or is aborted, the Group will face additional liquidity risks. To counter such risks, the Group maintains adequate liquidity reserves so as to be able to address any disturbances inflicted upon its cash flows.
Interest rate risk:
37% of total Group debt is based on fixed, pre-agreed interest rates and an additional 15% of floating interest rate debt has been swapped to fixed, via floating to fixed interest rate swaps. The impact therefore of interest rate volatility to the Income Statement and Cash Flow is limited, as illustrated by the following sensitivity analysis:
| Interest rate variation | Effect on profit before tax | ||
| Year ended 31 December 2012 | EUR | 1,0% -1,0% |
-2.819 2.819 |
| USD | 1,0% -1,0% |
1.464 -1.464 |
|
| TRY | 1,0% -1,0% |
-54 54 |
|
| BGN | 1,0% -1,0% |
-282 282 |
|
| EGP | 1,0% -1,0% |
-638 638 |
|
| ALL | 1,0% -1,0% |
-328 328 |
|
| Year ended 31 December 2011 | EUR | 1,0% -1,0% |
-5.261 5.261 |
| USD | 1,0% -1,0% |
-2.236 2.236 |
|
| TRY | 1,0% -1,0% |
- - |
|
| BGN | 1,0% -1,0% |
-345 345 |
|
| EGP | 1,0% -1,0% |
- - |
|
| ALL | 1,0% -1,0% |
-330 330 |
The ratio of fixed to floating rates of the Group’s net borrowings is determined by market conditions, Group strategy and financing requirements. Occasionally interest rate derivatives may also be used, but solely to minimize the relevant risk and to shift the fixed to floating ratio of the Group’s borrowings, if that is considered necessary. As at 31st December 2012, the Group had €130 million of floating interest rate debt swapped to fixed with an average duration of 2 years and at an average interest rate of 2.41%, part of which (€100 million notional) has been designated as cash flow hedge. According to Group policy, interest rate trends and the duration of the Group’s financing needs are monitored on a forward looking basis. Consequently, decisions about the duration and the mix between fixed and floating rate debt are taken on an ad-hoc basis. As a result, all short-term loans have been concluded with floating rates. Medium to long-term loans have been concluded partly with fixed and partly with floating rates.
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. Thus, the FX risk for the equity of Group subsidiaries in the USA is partially hedged by concluding dollar-denominated loans.
Exceptions to this are Turkey, Egypt and Albania, where Group investments are in Turkish liras, Egyptian pounds and Albanian lek, whereas part of the financing is in euro and U.S. dollars in Turkey, in euro in Albania, and in euro and in yen in Egypt. This issue is re-examined at regular intervals.
The yen financing in Egypt nevertheless has been hedged via FX forwards in U.S. dollar/ yen, that are rolled on a semi-annual basis and are executed on behalf of the Group’s subsidiary Iapetos Ltd.
Also, Group company Titan Global Finance plc. granted loans equal to €100 million in 2009 and €53.5 million thousand in the first half of 2012, to another Group company Titan America LLC. Subsequently, Titan America LLC hedged the loan principal 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 U.S. dollar, Serbian dinar, Egyptian pound, British pound, Turkish lira and Albanian lek floating exchange rates, with all other variables held constant:
| Foreign Currency | Increase/Decrease of Foreign Currency vs. € | Effect on profit before tax | Effect on equity | |
| 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% |
622 -536 |
2.507 -2.268 |
|
| ALL | 5% -5% |
-477 431 |
2.441 -2.209 |
|
| Year ended 31 December 2011 | USD | 5% -5% |
-4.734 4.283 |
26.749 -24.201 |
| RSD | 5% -5% |
772 -698 |
2.410 -2.180 |
|
| EGP | 5% -5% |
6.558 -5.934 |
44.228 -40.016 |
|
| GBP | 5% -5% |
34 -31 |
170 -153 |
|
| TRY | 5% -5% |
58 -52 |
979 -885 |
|
| ALL | 5% -5% |
-374 338 |
1.852 -1.675 |
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 used 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 2012, 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.