Trade and other payables

 Financial instruments

Exposure to credit, interest and currency risks arise in the normal course of the Group’s business. Derivative financial instruments may be used to hedge fluctuations in foreign exchange rates and interest rates. The responsibility to assess exposure as well as to enter into and manage derivative instruments is centralised in the Company’s treasury department. The activities of the Company’s treasury department are covered by corporate policies and procedures approved by the Board of Management, which specifically prohibit the use of derivative instruments for trading and speculative purposes. The Board of Management approves the hedging strategy and monitors the underlying market risks periodically. The Company measures derivatives based on current exchange and interest rates. Hedge accounting will be applied for significant hedges.

Credit risk
Credit controls are established throughout the Company to monitor credit limits on clients, assess the creditworthiness of new and current clients and promptly follow up overdue accounts. Due to the diversified client base of the Company, no major concentrations of credit risk exist.

Interest rate risk
The interest rates on the borrowings of the Company are floating. Developments in interest rate markets are monitored and fixing or capping interest rates may be considered based on market developments.

Foreign currency risk
Fluctuations in foreign currency exchange rates, particularly between the Euro and the USD and the Euro and the GBP, may have an impact on Vedior’s operating results. As Vedior’s businesses are operating and financed locally, Vedior has decided not to hedge its revenues and cash flow in foreign currencies. The impact of foreign currency exchange rate fluctuations on Vedior’s net income in Euro is, to some extent, limited as Vedior’s external borrowings and interest expenses are nominated in Euro, USD and GBP in approximately the same proportion as its operating income in these currencies.

Fair values
The fair values of certain assets and liabilities which are defined as financial instruments under IFRS, together with the carrying amounts shown in the balance sheet are as follows.

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table.

Interest bearing loans and receivables
Fair value is calculated based on discounted expected future principal and interest cash flows.

Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the monetary amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine their fair value.


 Operating leases

Non-cancellable operating lease rentals are payable as follows:

The Group leases a number of offices and operating equipment under operating leases. The leases typically run for a period of 3-5 years,
with an option to renew the lease after that date.

 Contingencies and guarantees

In connection with various acquisitions, the Company has encouraged management of acquired companies to retain a minority equity interest. The company has entered into put and call options with the holders of these minority interests, with the amounts payable determined by future performance. The aggregate liability under these agreements that were in place as at 31 December 2005 was contractually capped at a maximum of €258 million (2004: €144 million). In the normal course of events these options are exercisable over extended periods and generally not before a minimum of three to five years from the date of acquisition. If all the options had been exercisable at the balance sheet date, the aggregate liability based on current performance would have been €52 million (2004: €44 million).

In November 2004, the French competition authorities started investigations relating to alleged infringements of European and French competition law by Groupe Vedior France and certain competitors. The investigations are still ongoing and to date, no conclusions have been reached by the competition authorities on the outcome of their review.

The Company is involved in a number of legal proceedings relating to normal business activities. The Company believes that sufficient provisions have been made for their outcome.

The Company has given indemnifications, representations and warranties with respect to companies disposed of in recent years.

One preference shareholder has recently started litigation against the Company opposing the decision to redeem the preference shares and claiming a reversal of the redemption on the grounds that the legal process was invalid. Vedior disputes this claim and is confident that the litigation will be decided in its favour.

With respect to obligations of Group companies, Vedior N.V. is committed to some banks as main co-debtor and has extended guarantees in addition to consolidated liabilities of subsidiaries for an amount of €386 million (2004: €406 million). Vedior N.V.  issued statements for joint and several liability for Dutch subsidiaries in which it holds a majority interest. These companies are included in the consolidated accounts. At 31 December 2005, the total debt of these companies amounted to €190 million (2004: €180 million). 
 
The borrower of the Facility described here is one of the group companies and Vedior N.V. has extended a guarantee for all obligations under the Facility.