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 12), as well as trade and other accounts receivable (see Note 13). 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, mainly through guaranteed convertible senior bonds. At 31 December 2018, approximately 87.7% 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 25 bp, the financial expense would increase by 134 thousand euros plus interest.
In the event that the increase in interest rates were 50 bp, the financial expense would increase by 269 thousand euros plus interest.
In the event that the increase in interest rates were 1 bp, the financial expense would increase by 538 thousand euros plus interest.
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 2018 was as follows:
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 2018:
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 2018 of the aforementioned currencies:
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.
Liquidity risk
Exposure 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 2018 is based on the following points:
- The group had cash and cash equivalents amounting to 265,869 thousand euros at 31 December 2018.
- Available undrawn credit lines amounting to 312,192 thousand euros at 31 December 2018, of which 250,000 thousand euros relate to the undrawn guaranteed syndicated credit line maturing on 29 September 2021.
- The capacity of the business units to generate positive cash flows from operations.
- The Group’s capacity to increase its financial borrowing; given that it has non-collateralised assets and meet 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.