Exane Derivatives. General partnership (French Société en nom collectif) 16, avenue Matignon Paris

Transcription

1 ..t, Exane Derivatives General partnership (French Société en nom collectif) 16, avenue Matignon Paris Statutory auditors report on the annual financial statements Year ended 31 December 2014

2 MAZARS 61, rue Henri Regnault Courbevoie DELOITTE & ASSOCIES 185, avenue Charles de Gaulle Neuilly-sur-Seine Cedex Exane Derivatives General partnership (French Société en nom collectif) 16, avenue Matignon Paris Statutory auditors report on the annual financial statements Year ended 31 December 2014 Dear Sir/Madam, In performance of the assignment entrusted to us by your General Meeting, we hereby present to you our report, for the year ended 31 December 2014, on: - the audit of the annual financial statements of Exane Derivatives, as appended to this report; - the basis of our assessment; - the specific verifications and information required by law. The annual financial statements have been prepared by the manager. Our responsibility is to express an opinion on these financial statements based on our audit.

3 Exane Derivatives - Annual financial statements 2 / 3 1. Opinion on the annual financial statements We conducted our audit in accordance with the professional standards applicable in France. These standards require that we plan and perform the audit so as to obtain reasonable assurance about whether the annual financial statements are free of material misstatement. An audit involves verifying, using sampling techniques or other selection methods, the items supporting the amounts and disclosures in the annual financial statements. An audit also includes assessing the accounting principles used, material estimates made and the overall presentation of the financial statements. We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our opinion. We hereby certify that the annual financial statements give a true and fair view of the assets and liabilities and of the financial position of the Partnership as at 31 December 2014 and of the results of its operations for the year then ended, in accordance with French accounting rules and principles. II. Basis of our assessment Pursuant to the provisions of Article L of the French Commercial Code ( Code de c omme rce) relating to the basis of our assessment, we bring to your attention the following matters: Use of internal valuation models - As indicated in Note 2.3 of the notes to the financial statements entitled Other financial instruments, the partnership uses internal models to value financial instruments that are not traded on active markets. Our work consisted of reviewing the control mechanism for the models used, and assessing the data and assumptions used as well as the consideration given to the risks and results associated with these instruments. The assessments were made in the context of our audit of the annual financial statements, taken as a whole, and therefore contributed to the formation of our opinion expressed in the first section of this report.

4 Exane Derivatives - Annual financial statements 3 / 3 III. Specific verifications and information We also performed, in accordance with the professional standards applicable in France, the specific verifications required by the law. We have no observations to make as to the fair presentation and consistency with the annual financial statements of the information provided in the manager s management report and in the documents addressed to the partners on the Partnership s financial position and annual financial statements. Courbevoie and Neuilly-sur-Seine, 7 May 2015 Statutory auditors MAZARS DELOITTE & ASSOCIES [signature] [signature] [signature] Pierre Sardet Charlotte Vandeputte Pascal Pincemin

5 BALANCE SHEET - EXANE DERIVATIVES - Financial year from 1 January to 31 December 2014 (In thousands of euros) ASSETS Note Dec 14 Dec 2013 LIABILITIES Note Dec 14 Dec 2013 Cash and amounts due from central banks and post office banks Due to central banks and post office banks Receivables due from credit institutions Due to credit institutions Customer items Transactions with customers Bonds. equities and other variable-income and fixed-income securities Debt securities Investments in affiliates Other liabilities Other assets Accrued income Accrued income Provisions Property. plant and equipment Intangible assets Shareholder's equity Share capital Retained earnings Balance brought forward Net income TOTAL TOTAL

6 PROFIT AND LOSS ACCOUNT - EXANE DERIVATIVES - 31 December 2014 (in thousands of euros) Note 31/12/ /12/2013 Interest income Interest expenses Commission income Commission expenses Gain / loss on financial instruments Gains or losses on available-for-sale portfolio 908 Other operating income Other operating expenses Revenues Operating expenses Depreciation, amortisation and impairment of property, plant and equipment, and intangible assets Gross operating income Operating income Pre-tax income Corporate income tax Net income

7 OFF BALANCE SHEET - EXANE DERIVATIVES - financial year ended 31 December 2014 (in thousands of euros) Note 31/12/ /12/2013 COMMITMENTS GIVEN Guarantee commitments COMMITMENTS RECEIVED Financial commitments Guarantee commitments Commitments on securities Commitments on financial instruments 3

8 EXANE DERIVATIVES NOTES TO ACCOUNTING STATEMENTS Financial year from 1 January to 31 December ) PROFILE A general partnership with capital of 17,248,320 euros, Exane Derivatives was authorised in France by CECEI (Committee on Credit Institutions and Investment Companies) as a credit institution on 5 th March Exane Derivatives is authorised to provide investment services as well as carry out banking transactions relating to its derivatives activities. 2) ACCOUNTING PRINCIPLES AND METHODS The financial statements of Exane Derivatives have been prepared in accordance with CRBF regulation of 4 th July 2000 pertaining to the financial statements of companies reporting to the Financial and Banking Regulation Committee, as well as with accounting standards generally applied in France. The financial statements are presented in thousands of euros. The firm is part and parcel of the scope of consolidation of the Groupe Exane. 2.1 Receivables and debts due from/to credit and financial institutions This item includes on the one hand balances of accounts held by french and foreign correspondent institutions, i.e. credit and financial ones, stockbrokers and custodians, stemming from flows of cash on overnight securities and cash lending/borrowing, and on the other hand receivables and debts representing the value of securities borrowed or lent against cash. 2.2 Bonds and other fixed-income securities - Equities and other variable-income securities - Debt securities Trading securities Cash equities, UCITS shares and other variable-income and fixed-income securities of the security transactions portfolio are MTM-valued with the last known quoted price for securities traded on an active and liquid market at the balance sheet date or, in the absence of such a market, at a price given by the Risk Management Department with the use of an internal valuation model. Measurement adjustments are recognised in the profit and loss account under Expenses/income revaluation. 4

9 Investment securities Investment securities are recorded at acquisition cost in the investment securities portfolio. An impairment of loss is recognised against the fair value of these securities whenever it may fall below book value at the balance sheet date. Security lending/borrowing against cash (repurchase agreements) Securities lent against cash are taken to the balance sheet. Securities borrowed against cash are not taken as assets to the balance sheet. However, the cash related to securities lent or borrowed is recorded as Deposits paid or received on securities lent/borrowed on the line Receivables and debts due from/to credit and financial institutions. Receivables and debts are not valued at fair value at the balance sheet date. Security-backed lending/borrowing Borrowed securities collateralised by other securities are taken to the balance sheet under Shares and other variable-income securities. The corresponding debt is recorded as a liability under Debts on security borrowing. Borrowed securities and debts on security borrowing are marked to market. 2.3 Other financial instruments Options Organised markets Call or put premiums on options transactions carried out on organised markets are booked separately in assets and liabilities on the balance sheet. At each balance sheet date, these instruments are measured at the last quoted price issued by compensation firms or brokers. Measurement adjustments are taken to the profit and loss account under Expenses and Income. To cancel out the profit and loss impact of unexplained price discrepancies that may occur at market close, the difference between the last quoted price and the theoretical price of the instrument, calculated with the use of an internal model and uniform market parameters for all transactions, is recorded as an unrealised gain or loss. The price is submitted to the formal approval of Exane Derivatives Risk Management Department. Over-the-counter markets Premiums on OTC options are recognised separately in assets and liabilities on the balance sheet. Changes in the value of options are recorded directly in the profit and loss account. Financial instruments are priced with the use of internal models in the absence of organised markets. Again, the pricing is submitted to the formal approval of Exane Derivatives Risk Management body. Futures and forward Organised markets Positive and negative margins noted on transactions, settled or in settlement, carried out on futures markets, are recognised in profit and loss. To cancel out the profit and loss impact of unexplained price discrepancies that may occur at market close, the difference between the last quoted price and the theoretical price of the instrument, calculated with the use of an internal model and uniform market parameters for all transactions, is recorded as an unrealised gain or loss. The price is submitted to the formal approval of Exane Derivatives Risk Management Department. Over-the-counter markets Financial instruments are priced using an internal model in the absence of organised markets. The pricing is submitted to the formal approval of Exane Derivatives Risk Management Department. 5

10 Structured derivatives products Some of these long-maturity or illiquid complex financial instruments, generally bespoke products, are valued with the use of internal models whose parameters are partly non-observable on reference markets. When the initial margin generated by the placement of these complex financial instruments is not considered acquired for good, it is deferred and amortised to the profit and loss account generally over the period during which the market data is deemed to be non observable. 2.4 Valuation policy and control The valuation policy, whether derivatives instruments are listed on an organised market or OTC traded, is validated by the Risk Management Department. Instruments valued using market quotation are mainly shares and similar instruments, trackers, funds, index, interest rate and commodities futures and listed options. Instruments valued using a model are mainly vanilla and exotic OTC options, structured issues (warrants, EMTN, etc.), interest rate swaps and performance swaps. For these instruments, the Risk Management Department validates the valuation models and parameters used for these models. 2.5 Investments in affiliates This item encloses shares and other variable-income securities issued by affiliated companies. Securities are recorded at acquisition cost. At period end, a provision for impairment may be applied if the value in use is lower than the cost. Investments in foreign currencies are converted into euros at the historical exchange rate. 2.6 Property, plant, and equipment and intangible assets Provisions for impairment related to new acquisitions are calculated on the basis of current economic life duration of assets in the company. The table below shows the types of provisions for impairment Exane SA chose to resort to at 31 December Type of assets Software IT & electonics Office furniture Fixtures Provisions for impairment - Type and period Straightline 3 to 5 years Straightline 3 years Straightline 5 years Straightline 5 years 2.7. Recording of income and expenses Income and expenses are recorded when they originate. The total amount of compensation (immediate or deferred) is recorded in full as an expense in the financial year of attribution. 6

11 3. NOTES TO THE BALANCE SHEET 3.1 Receivables and debts due from / to credit institutions (in thousands of euros) 31 December December 2013 Deposits paid on securities borrowed Current accounts Total assets Debts due to credit institutions are deposits received by Exane Derivatives regarding securities lending transactions. (in thousands of euros) 31 December December 2013 Deposits received on securities lent Total liabilities Customer items These items include balances of current accounts opened between Exane Derivatives and the various subsidiaries of the Exane Group. Customer transaction payables mainly include current accounts opened with the parent company Exane SA and with the subsidiaries Exane Options for 4,4 million euros and Ellipsis Asset Management for 2,6 million euros ; Exane SA Genève for 9,6 million euros. Customer transaction receivables mainly include current accounts opened with the parent company Exane SA and its branches for a total amount of 656,4 million euros, and Exane Finance for an amount of 22,4 million euros and Exane Ltd for 2,5 million euros. The maturity of debts and receivables is less than one year. 3.3 Bonds and other fixed-income securities - Shares and other variable-income securities - Debt securities On 31 December 2014, this item comprises securities held for trading at mark-to-market value net of adjustments, debt securities issued by Exane Finance but not yet underwritten by customers, and guaranteed issues (641,6 million euros). Securities are issued for the most part by Exane Finance and for a minor part by Exane SA. Amounts are displayed here net of valuation adjustments 7

12 (in thousands of euros) 31 December December 2013 Treasury stock / Medium term notes Other fixed-income securities Other fixed-income securities Equities and other variable-income securities UCITS Borrowed securities Other variable-income securities Total assets Under liabilities, secondary market transactions are short positions on Exane Derivatives trading activities at 31 December (in thousands of euros) 31 December December 2013 Other fixed-income securities Other fixed-income securities Eqsuities and other variable-income securities Debts on security lending Other variable-income securities Total liabilities Investments in affiliates (in thousands of euros) 31 December 2013 Acquisition/ Creation Disposals 31 December 2014 Wholly owned french subsidiaries 100% Exane Options ( SA) Ellipsis Asset Management ( SA) Total Other assets and liabilities The item Financial options bought comprises OTC option premiums bought by Exane Derivatives on organised or over-the-counter markets and collaterals on OTC products. 8

13 (in thousands of euros) 31 December December 2013 Financial options bought OTC collaterals, deposits Social andtax assets Other assets Total assets The item Financial options sold comprises OTC option premiums and collaterals on options sold by Exane Derivatives on organised or over-the-counter markets and collaterals on OTC products. (in thousands of euros) 31 December December 2013 Financial options sold OTC collaterals, deposits Social liabilities Tax liabilities Other liabilities Total liabilities Accrued income / expenses (in thousands of euros) 31 December December 2013 Debtor adjustments accounts (1) Miscellaneous (2) Accrued income Prepaid expenses Total assets Creditor adjustments accounts (1) Miscellaneous (2) Accrued expenses Total liabilities (1) Debtor and creditor adjustments accounts on cash equity market transactions mainly consist of trading and settlement accounts that record, in euros and at acquisition price, security transactions on behalf of brokers, financial institutions or banks, and for which the settlement remains outstanding. (2) Derivatives are financial assets and liabilities which are recognised on the balance sheet at fair value at inception of the transaction. They are either held for trading purposes or used for hedging purposes. 9

14 3.7 Provisions (in thousands of euros) 31 December 2013 New provisions Write-backs 31 December 2014 Provisions The amount of the obligation recognised as a liability is the best estimate of the present actuarial value. Measurement of employee benefits takes into account various parameters, such as a discount rate, demographic assumptions, the probability that employees will leave before retirement age, salary inflation, and social security taxes. The amount of the employee benefits provision is discounted at each balance sheet date. Exane Derivatives calculated the amount of its commitment towards its employees, present in the firm and under employment contract at 31 December 2014, with the following assumptions: Actuarial assumptions 31 December 2014 Discount rate 1,49% Average rate of increase in salary 6% maximum declining wirth time Retirement age 65 years old Labour turnover rate 10% declining with time Employers' contributions 62,50% 3.8 Shareholders equity (in thousands of euros) 31 December 2013 Appropriation of 2013 income 2014 net income 31 December 2014 Capital Retained earnings Balance brought forward net income net income Total The registered capital of Exane Derivatives is made up of 1,724,832 ordinary shares with a par value of 10 each: one share is held by Exane Finance and the rest is held by Exane SA. 4. NOTES TO THE OFF -BALANCE SHEET 4.1 Guarantee commitments Exane Finance was granted a performance bond by Exane Derivatives in order to hedge commitments given to bearers regarding issuance activities. 4.2 Commitments on future / forward and options contracts The table below gives a detailed insight into Exane s commitments on future / forward and options contracts at 31 December

15 All transactions are managed within trading portfolios. (in thousands of euros) 31 December December 2013 TO TAL 0 to 1year 1 to 5 years > 5 years TO TAL 0 to 1year 1 to 5 years > 5 years futures and forwards Organised markets Interest rate instruments Equity index instruments Trading securities instruments Commodities Over-the -counter markets Equity index swaps Interest rate swaps Trading securties instruments Currency swaps Commodities Currency contracts Options Organised markets Index options Trading securities options Commodities options Options sur devises Over-the -counter markets Credit default swaps Index options Interest rate options Trading securities options Commodities options Currency options Total Risk management Financial risks monitoring The Risk Management Department reports directly to the Deputy Chief Executive Officer of the Exane Group in charge of the Risk Management Compliance Departments, himself reporting to the Group Chief Executive Officer. Its main tasks comprise: Market risk: - defining and measuring risk indicators, - setting limits, monitoring overruns, managing overrun approval, - validating pricing models, - validating products and their description in the management system, - validating valuation parameters, - calculating and monitoring own funds requirements regarding market risk (based on the standard approach). Counterparty risk: - validating any entry into business relations with any new third party (principal, introducing broker, distributor, OTC counterparty, etc.), - assigning an internal rating, - monitoring commitments and limits on a daily basis. - calculating and monitoring own funds requirements regarding counterparty risk (based on the standard approach). 11

16 Liquidity risk: - daily monitoring cash consumption by activities, - anticipating cash requirements, - defining and monitoring risk indicators, - calculating and monitoring of regulatory liquidity ratios. The Risk Management Department performs for all the financial risks, the reporting of its activity and results of its controls to Management Risk Committee Group, Executive Committee and Board of directors. Market risk: Four market risk measurement processes are carried out daily: - a calculation of capital requirements according to the standard method defined in the banking regulations, - a calculation based on an proprietary stress scenario model called Internal Capital Allowance (ICA), - a normal Value-at-Risk and a stressed Value-at-Risk each calculated on a panel of 300 scenarii of daily changes of market parameters in according to the internal model, - historic and hypothetical stress scenarios meeting the requirements of an internal model. The ICA uses the worst-case scenario for each area studied, based on sudden changes, whether simultaneous or not, in interest/exchange rates, the price of underlying assets, volatility, credit, correlations and dividends. Asset decorrelation risk is also included in these calculations. Credit / counterparty risk: Credit risk exists in all of the Group s positions in equity instruments and debt securities through issuer risk. These positions are subject to market risk limits. Counterparty risk is generated: - in proprietary trading by OTC hedging transactions with banks, - by OTC transactions with non-banking clients who have been granted specific authorisations by the Group s Risk Management Department, - by swaps to hedge structured products which are issued by external institutions although arranged and underwritten by Exane; these transactions are entered into with highly rated financial organisations, - by securities lending/borrowing related to proprietary trading or brokerage activities. Each position has an internal limit on the total exposure to issuer risk and counterparty risk. The Group has changed its calculation method of exposure to counterparty risk and now resorts to ICA principles. Liquidity risk: Liquidity and refinancing risk is based on the liquidity policy approved by the Management. The target is to maintain sufficient available resources, in particular by the available part of BNPP financing line, in order to address activities requirements and to face liquidity crisis. The use of BNPP credit facility is assessed using a daily monitored internal limit. On a weekly basis the future cash requirements are measured and analysed Operational risk The Permanent Control & Operational Risk Department is managed by the Coordinator of Group Permanent Control, reporting to the Deputy Chief Executive Officer, member of executive board. This process relies on Operational Risk Correspondents within each of the Group s business line and function, and has the following missions: ensuring that consistency, completeness and efficiency of permanent control process regarding nonfinancial risks, in particular in connection with Compliance and IT Security Departments; monitoring operational risk process at a Group level. These missions are illustrated by 12

17 maintaining the processes / risks / controls mapping with the respect of the defined methodology; checking adequacy, supporting documentation and correct running of control process, and analysis and monitoring founded anomalies; analysing operational incidents report; coordinating the follow-up of essential services providers; validating, monitoring and closing the related controls plans; reporting its activity and results of its controls to Management Risk Committee Group, Executive Committee and Board of Directors. The Exane Group applies the standard approach for the calculation of own funds requirements regarding operational risk and is compliant with the qualitative requirements linked to this option thanks to the process described above. 5. NOTES TO THE PROFIT AND LOSS ACCOUNT 5.1 Interest income and interest expenses The items Interest income and Interest expense include the remuneration of demand accounts, financial loans and borrowings, as well as deposits related to securities lending/borrowing. The item Interest income falls into the following categories: (in thousands of euros) 31 December December 2013 Deposits received related to lent securities Demand accounts Total income The breakdown of Interest expenses is the following: (in thousands of euros) 31 December December 2013 Deposits paid related to borrowed securities Collateral forward and options contracts Demand accounts Total expenses

18 5.2 Commission income and expenses (in thousands of euros) 31 December December 2013 Forward and options contracts fees Intermediation and distribution fees Total income (in thousands of euros) 31 December December 2013 Distribution fees Security transactions fees Forward and options contracts fees Other commissions 6 7 Total expenses Net gain / loss on trading portfolios transactions This item includes gains and losses related to transactions on: trading securities, forward and options contracts, foreign exchange. As stated in the note on accounting principles, the margin at inception is only recognised in profit or loss account where the valuation models used are based on market data that are considered observable. The Risk Management Department is in charge of approving the method for calculating the various non-observable parameters. Most of the instruments concerned are multi-underlying equity derivatives, currency products and commodities. Measurement of the impact of taking into account Day one gains (in thousands of euros) Deferred margin as at 31 December Impact of new transactions during the period Effect of parameters or products that became non-observable during the period 327 Early terminations Amortisation Deferred margin as at 31 December Other operating income and expenses The item Other banking income mainly includes underwriting commissions received from Exane Finance and related to certificates and warrants issuance transactions. The item Other banking expenses mainly includes research and analysis services provided to Exane 14

19 Derivatives, guaranteed issue service commissions paid to Exane Finance and market fees invoiced by Exane SA. 5.5 Operating expenses (in thousands of euros) 31 December December 2013 Fixed and variable remuneration Social security taxes Pension costs Intragroup invoices Other taxes Fees Office rent Facilities management Travel and entertainment expenses Other expenses General operating expenses Intragroup invoices include various operating expenses as regards logistics, IT & electronics, which the parent company Exane SA recharges its subsidiary Exane Derivatives. The average workforce of Exane Derivatives developed as follows: Number of staff 31 December December 2013 Executives 195,5 186,9 Supervisors 2,6 9,0 Employees 8,7 2,4 Average headcount 206,8 198,3 5.6 Cost of risk No amount was booked in this caption as of 31 December Corporate income tax The French corporate income tax includes all taxes calculated on net income. Current taxes are calculated on the 2014 fiscal year earnings. The tax charge of Exane Derivatives for 2014 amounts to 9,904 million euros. 15

20 6. CASH FLOW STATEMENT (in thousands of euros) 31 December December 2013 Operating activities Pre-tax net income Non-monetary items included in pre-tax net income and other adjustments Net depreciation/amortisation expense on property, plant and equipment and intangible assets Net increase/decrease in cash related to assets and liabilities generated by operating activities Net increase/decrease in cash related to transactions with credit institutions Net increase/decrease in cash related to transactions with customers Net increase/decrease in cash related to transactions involving other financial assets and liabilities Net increase/decrease in cash related to transactions involving non-financial assets and liabilities Taxes paid Net increase/decrease in cash and equivalents generated by operating activities Investing activities Change in equity investments 0 0 Net increase/decrease related to property, plant and equiment and intangible assets Net increase/decrease in cash and equivalents generated by investing activities Financing activities Net increase/decrease in cash and equivalents related to transactions with shareholders Net increase/decrease in cash and equivalents generated by other financing activities 0 Net increase/decrease in cash and equivalents generated by financing activities Net increase/decrease in cash and equivalents Balance of cash and equivalent accounts at the beginning of the period Cash and amounts due from central banks and post office banks Demand deposits/loans with/from credit institutions Balance of cash and equivalent accounts at the end of the period Cash and amounts due from central banks and post office banks Demand deposits/loans with/from credit institutions Net increase/decrease in cash and equivalents