Liquidity and capital resources

The Group interest-rate risk arises from the fluctuations in interest rates that affect the financial costs of non- current borrowings issued at variable interest rates.

In line with its risk management policy, the Group arranges various interest rate hedges to mitigate its risk exposure. As of 31 December 2016 and 2015, there were no outstanding derivatives with external counterparties to hedge the interest rate of long-term financing.

During 2016, the percentage of fixed-interest debt on the average gross debt volume was 59.33% versus 78.70% in the previous year.

The Group’s policy for financial assets is to keep ready cash to use. These balances are held in financial institutions with high credit ratings.

Operational: cash flows

Fluctuations in currencies, other than the local currency, may have a positive or negative impact on the consolidated accounts. The Group seeks to minimize the risk through the negotiation of forward currency contracts managed by the Group’s Treasury Department. The amount of annual hedging transactions carried out during 2016 amounted to USD6.552m and USD5.359m in 2015. This amount represented 66.09% of the transactions carried out in this currency in 2016 (98.38% in 2015). At the end of 2016, outstanding hedges in dollars amounted to USD1.803m (USD1.284m in 2015), and expire in the next eleven months. These transactions are not significant in comparison with the Group’s total purchases. 

Subsidiaries

The Group holds investments in foreign operations, the net assets of which are exposed to currency risk. Currency risk affecting net assets of the Group’s foreign operations in Argentinian Pesos, Chinese Yuan and Brazilian Real is mitigated primarily through borrowings in the corresponding foreign currencies.

The translation differences included in other comprehensive income are significant due to the sharp devaluations of the Argentinian Peso and the Brazilian Real. If the exchange rates in the countries where the Group operates that use a currency other than the Euro had depreciated/appreciated by 10%, the translation differences would have varied by +32.71% / -32.71%, respectively, in the equity of the DIA Group.

The Parent company has “Equity Swap” contracts worth EUR39.944m. At the end of 2015, they amounted to EUR42.266m. Both operations have been performed to meet the payment obligations arising from the LTIP program (Long-Term Incentive Plan) to the Group Executives. Details are included in note 16 of the Notes of the Consolidated Annual Accounts. The derivative financial instrument is registered in the consolidated Net Equity.