Financial risks
Vedior is exposed to a variety of financial risks, including currency fluctuations, interest rate fluctuations, credit risk and capital availability risks.
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Currency fluctuation risks: 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. In 2005, 52% of Vedior’s operating income was in Euro, 22% in GBP and 15% in USD. 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 denominated in Euro, USD and GBP in approximately the same proportion as its operating income in these currencies. |
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Interest rate fluctuation risks: Interest rate fluctuations may have an impact on Vedior’s net results. Vedior’s interest bearing debt consists almost entirely of floating rate debt and as a result any change in interest rates immediately affects Vedior’s cost of borrowing. Vedior’s policy is not to hedge against interest rate movements as our exposure to cyclical economic conditions provides a natural hedge against interest rate movements in itself, assuming these interest rate changes are also mainly affected by economic cycles. |
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Credit risk: At year-end 2005, Vedior had €1.4 billion of trade receivables due from clients. Collectability of trade receivables is managed through credit risk analysis of clients, credit limits and monitoring of outstanding amounts. Ageing of outstanding amounts and provisions for uncollectible amounts are reviewed on a monthly basis by local management and the Board of Management. |
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Capital availability risks: Vedior has €843 million of committed credit facilities and €274 of uncommitted facilities (see also note 19). Vedior’s borrowing requirements fluctuate significantly throughout the year, impacted by the seasonality of our business and fluctuating working capital requirements of our operating companies. Vedior has cash flow forecast-reports that enable the Board of Management to assess the financial headroom under its credit facilities and respond in good time, if required. Vedior’s main facility is an €800 million multicurrency revolving credit facility which contains a number of affirmative, negative and financial covenants. The Company’s failure to maintain these covenants would constitute an event of default under the facility, entitling the lenders to accelerate the repayment obligations. Further details on Vedior’s financial covenants are provided here. |
Financial reporting risks
With respect to financial reporting risks, Vedior’s internal risk management and control systems include the following elements, in addition to the systems and procedures as described above:
In connection with the audit of the 2005 financial statements of the Company, the external auditor reviewed the design and implementation of key financial controls with respect to the following processes: revenue, registration of services provided, payroll (for temporary workers as well as for staff), expenditure, information resources and financial reporting. The auditor made several suggestions for further improvement of accounting procedures and internal controls and concluded that the overall level of the design and implementation of key financial controls is adequate. Recommendations and suggestions made by the external auditor have been discussed with the Board of Management and the Audit Committee, and improvement actions are closely monitored by the Board of Management. The Board of Management is of the opinion that the risk management and control systems relating to financial reporting risks, as outlined above, provide reasonable assurance that the financial reporting does not contain any material inaccuracies and that these systems have worked properly in 2005. There are no indications that these systems will not continue to work properly in the current year. Whistleblower procedure In all countries where this is legally permitted, the Board of Management ensures that Vedior employees have the possibility of reporting alleged irregularities of a general, operational and financial nature in the Company to the Chief Executive. Any alleged irregularities relating to a member of the Board of Management can be reported to the Chairman of the Supervisory Board. Vedior encourages all employees to be good corporate citizens and to strive to become economic, intellectual and social assets to their local communities. Vedior employees are obliged to act according to the Vedior Code of Conduct that stresses the values and the ethics Vedior stands for. Companies within the Group are encouraged to adopt socially responsible business policies and practices that equally balance the interests of investors, customers, employees, suppliers, business partners and local communities. Vedior conducts business based on the principles of fairness, honesty, integrity and respect for individuals. Where legally permitted, all Vedior employees are encouraged to report to their management promptly any breach or suspected breach of any law, regulation, the Code of Conduct or other Company policies and guidelines, and any concerns regarding irregularities of a general, operational or financial nature in the Company. This kind of reporting is commonly known as ‘whistleblowing’. The Company wants to ensure that any employee who wishes to make such a report of any irregularity, which the employee believes to be true, can do so without the risk of retaliation and with the assurance that all reports can be made anonymously, will be treated strictly confidentially and promptly investigated.
Corporate website The full text of the above mentioned regulations, articles of association, schedules, profile, charter, policy and procedures are available at the Company’s offices and are posted on the corporate website at www.vedior.com
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