IBERSOL Annual Report and Consolidated Accounts 2017

Report on Corporate Governance Financial Risk management in the financial area is led by the Financial Unit, which focuses on monito- ring the volatility of the financial markets, especially interest rate and exchange rate volatility. The current situation of the markets has led to liquidity risk taking on greater importance. The Group’s policy regarding financial risk management is conservative and cautious when using derivative instruments for hedging does not take positions that are not strictly related to the activity or positions that have speculative purposes. The main sources of exposure to financial risk are: a) Exchange rate risk This risk increased significantly during the last year, because the subsidiaries in Angola saw limited access to foreign exchange, resulting in an extension of the payment terms to inter- national suppliers, which increased its exposure to the effects of devaluation. With regard to financing outside the Euro zone the Group will pursue a natural hedge policy, preferably in local currency financing. In order to ensure adequate protection of Angolan subsidiaries to increase value of the obli- gations in foreign currency, proceeded to the purchase of instruments indexed to the dollar, in order to ensure the “hedging”. Increased activity in Angola will result in an increased risk of exchange - if they maintain the current constraints of access to foreign exchange - which will affect the value of assets and liabilities. b) Interest rate risk As the Group has no interest-earning assets with significant interest, in addition to treasury bonds issued by Angola for the purpose of “hedging”, the profit and cash flows of the finan- cing activities are substantially independent of changes in market interest rate. The risk of the Group’s interest rate comes from liabilities, specifically long term loans. Bor- rowings issued at fixed rates expose the Group to fair value risk associated with interest rate. With the current level of interest rates, the Group’s Policy is, in more mature financing, to proceed to the total or partial fixing of interest rates. Ibersol resorted to interest rate risk hedging operations to 26% of variable rate loans, and its objective is to cover at least 50%. c) Credit risk The Group’s principal activity is carried out with sales paid in cash or by debit/credit card, so that the Group has no relevant credit risk concentrations. However, with the increase in sales of the catering business and provision services to franchisees, which has a significant propor- 168