30.- EXPOSURE TO RISK

The Group financial risk management is centralised at the Corporate Finance Division. This Division has put the necessary measures in place to control exposure to changes in interest and exchange rates on the basis of the Group’s structure and financial position, as well as credit and liquidity risks. If necessary, hedges are made on a case-by-case basis. The main financial risks faced by the Group’s policies are described below:

Credit risk

The Group main financial assets include cash and cash equivalents (see Note 13), as well as trade and other accounts receivable (see Note 12). In general terms, the Group holds its cash and cash equivalents in entities with a high credit rating and part of its trade and other accounts receivable are guaranteed by deposits, bank guarantees and advance payments by tour operators.

The Group has no significant concentration of third-party credit risk due to the diversification of its financial investments as well as to the distribution of trade risks with short collection periods among a large number of customers.

Interest rate risk

The Group’s financial assets and liabilities are exposed to fluctuations in interest rates, which may have an adverse effect on its results and cash flows. In order to mitigate this risk, the Group has established policies and has refinanced its debt at fixed interest rates through the issuance of convertible bonds and guaranteed convertible senior bonds. At 31 December 2017, approximately 92% of the gross borrowings was tied to fixed interest rates.

In accordance with reporting requirements set forth in IFRS 7, the Group has conducted a sensitivity analysis on possible interest-rate fluctuations in the markets in which it operates, based on these requirements.

Through the sensitivity analysis, taking as a reference the outstanding amount of that financing that has variable interest, we estimated the increase in the interest that would arise in the event of a rise in the reference interest rates.

In the event that the increase in interest rates were 0.25%, the financial expense would increase by 143 thousand euros.

In the event that the increase in interest rates were 0.5%, the financial expense would increase by 286 thousand euros.

In the event that the increase in interest rates were 1%, the financial expense would increase by 573 thousand euros.

The results in equity would be similar to those recorded in the income statement but taking into account their tax effect, if any.

Lastly, the long-term financial assets set out in Note 10 of this annual report are also subject to interest-rate risks .

Exchange rate risk

The Group is exposed to exchange-rate fluctuations that may affect its sales, results, equity and cash flows. These mainly arise from:

• Investments in foreign countries (essentially Mexico, Argentina, Colombia, Chile, Ecuador, the Dominican Republic, Brazil, Panama and the United States).
• Transactions made by Group companies operating in countries whose currency is other than the euro (essentially Mexico, Argentina, Colombia, Chile, Ecuador, the Dominican Republic, Venezuela, Brazil, the United States and the United Kingdom).

In this respect, the detail of the effect on the currency translation difference of the main currencies in 2017 was as follows:

	Thousands of Euros
	Currency translation difference	Changes with respect to 2016
US dollar	2.725	(1.756)
Argentine peso	(96.861)	(6.167)
Mexican peso	(20.764)	(3.795)
Colombian peso	(15.921)	(8.246)

The changes in the currency translation difference of the above currencies was mainly due to the movements in exchange rates between 31 December 2017 and 31 December 2016:

Year-end euro reference exchange rate	31/12/2017	31/12/2016	Change
US dollar	0,833820	0,948680	(12,11%)
Argentine peso	0,044240	0,059910	(26,16%)
Mexican peso	0,042260	0,045930	(7,99%)
Colombian peso	0,000280	0,000320	(12,50%)

As can be observed in the table, the movements in the exchange rate of the currencies with respect to the end of the previous year is in line with the changes in equity associated with these currencies.

Below is a detail of the movements in the average exchange rate between 2017 and 2016 of the aforementioned currencies:

Year-end average euro reference exchange rate	2017	2016	Change
US dollar	0,885190	0,903420	(2,02%)
Argentine peso	0,053280	0,061180	(12,91%)
Mexican peso	0,046890	0,048390	(3,10%)
Colombian peso	0,000300	0,000300	-

For these currencies an analysis was carried out to determine if it would be better to apply a monthly average or cumulative average exchange rate, and no significant difference resulted from this analysis.

In addition, a sensitivity analysis was performed in relation to the possible fluctuations in the exchange rates that might arise in the markets in which it operates. For this analysis, the Group has taken into consideration fluctuations in the main currencies with which it operates other than its functional currency (the US dollar, the Argentine peso, the Mexican peso and the Colombian peso). On the basis of this analysis, the Group considers that a 5% depreciation in the corresponding currencies would have the following impact on equity:

	Thousands of Euros
	Revenues	Equity	Net Profit (loss)
US dollar	(591)	(837)	331
Argentine peso	(1.917)	(903)	(139
Mexican peso	(1.745)	(2.193)	(211)
Colombian peso	(1.846)	(2.337)	80

The Group has no investments in countries with hyperinflationary currencies.

Liquidity risk

xposure to adverse situations in debt or capital markets could hinder or prevent the Group from meeting the financial needs required for its operations and for implementing its Strategic Plan.

Management of this risk is focused on thoroughly monitoring the maturity schedule of the Group’s financial debt, as well as on proactive management and maintaining credit lines that allow forecast cash needs to be met.

The Group’s liquidity position in 2017 is based on the following points:

• The group had cash and cash equivalents amounting to 80,249 thousand euros at 31 December 2017 (see Note 13).
• Available in undrawn credit lines amounting to 316,345 thousand euros at 31 December 2017, of which 250,000 thousand euros represent credit lines not drawn down in the medium term (Note 15).

The Group’s business units have the capacity to generate cash flow from their operations.

• The Group’s capacity to increase its financial borrowing, given that it has non-collateralised assets and meets the financial ratios required by the financing agreements.

Lastly, the Group makes cash flow forecasts on a systematic basis for each business unit and geographical area in order to assess their needs. This Group liquidity policy ensures payment undertakings are fulfilled without having to request funds at onerous conditions and allows its liquidity position to be monitored on a continuous basis.

31.- TRANSLATION

Translation of 2017 Consolidated Financial Statements and Consolidated Management Report originally issued in Spanish and prepared in accordance with IFRS’s as adopted by the European Union. In the event of a discrepancy, the Spanish-language version prevails.