Currency ﬂuctuations impact the Group at two levels: a) impact on competitive position: the Group sells its products and services in global markets. It competes primarily with its main competitor, a U.S. company that currently manufactures its equipment in China, as do the majority of the Group’s other competitors. As a result, their production costs are primarily in Chinese yuan, while those of the Group are in euros. Meanwhile, sales prices in many markets are in U.S. dollars or euros. The exchange rates between these three currencies have, therefore, a competitive impact; b) currency translation impact: – on the income statement, as accounts are consolidated in euros, revenues, gross proﬁt, and income from operations of a subsidiary conducting its business in a foreign currency are mechanically affected by exchange rate ﬂuctuations when translated into euros; – on balance sheet positions, this refers primarily to foreign currency accounts receivable, in particular to those between the parent company Lectra SA and its subsidiaries, and it corresponds to the variation between exchange rates at collection date and those at billing date. This impact is recognized in “Foreign exchange income/loss” in the income statement. Currency risk is borne by the parent company. The Group seeks to protect all of its foreign currency receivables and debts as well as future cash ﬂows against currency risk on economically reasonable terms. Hedging decisions take into account currency risks and trends where these are likely to signiﬁcantly impact the Group’s ﬁnancial condition and competitive situation. The bulk of foreign currency risk concerns the U.S. dollar. The Group generally seeks to hedge the risk arising in respect of its net operational exposure to the U.S. dollar (revenues less all expenses denominated in U.S. dollars or strongly correlated currencies) by purchasing dollar puts (calls euros / puts dollars) or by forward currency contracts, when justiﬁed by the cost of the hedge. Sensitivity to U.S. dollar ﬂuctuations and other currencies is shown in note 33 to the consolidated ﬁnancial statements. The Group’s statement of ﬁnancial position
exposure is monitored in real time; it utilizes forward currency contracts to hedge all relevant receivables and debts. Interest-Rate Risks The Group now no longer has any ﬁnancial debt and therefore has no interest-rate risk exposure. The remainder of its debt (€0.4 million at December 31, 2014) consists of interest-free repayable public subsidies to fund R&D programs. Stock Market Risks The Group holds no interests in listed companies other than its own shares held under a Liquidity Agreement (see note 15.2 to the consolidated ﬁnancial statements), and is therefore not subject to stock market risk.
4.4. Customer Dependency Risks
Each year, revenues from new systems, accounting for 42% of total revenues in 2014, are generated by around 2,000 customers and comprise both sales to new customers and extensions to or the renewal of existing customers’ installed bases. Revenues from recurring contracts, accounting for around 34% of 2014 total revenues, are generated on almost 5,500 Lectra’s customers. Finally, sales of spare parts and consumables, which account for 24% of 2014 total revenues, are generated on a large proportion of the installed CAD/CAM equipment. There is thus no material risk of dependence on any particular customer or group of customers, as no individual customer represented more than 7% of consolidated revenues over the last three-year period, and the company’s 10 largest customers represented less than 20% of revenues combined, and the top 20 customers less than 25%.
4.5. Legal and Regulatory Risks