WAL-MART DE MÉXICO, S.A.B. DE C.V. Wal-Mart de México, S.A.B. de C.V. | Consolidado | |
Clave de Cotización: | WALMEX | Trimestre: 4D Año: 2022 |
[800007] Anexo - Instrumentos financieros derivados
Discusión de la administración sobre las políticas de uso de instrumentos financieros derivados, explicando si dichas políticas permiten que sean utilizados únicamente con fines de cobertura o con otro fines tales como negociación [bloque de texto]
Wal-Mart de México, S.A.B. de C.V., ("WALMEX" or "the Company") disclosure, concerning the use of derivative financial instruments (IFD, per its acronym in Spanish), in compliance with Mexican National Banking and Securities Commission (CNBV, per its acronym in Spanish) regulations so that investors have information regarding the significance of derivatives in the Company's financial position and results, and can fully assess the inherent risks.
WALMEX has adopted the use of IFD to hedge foreign exchange rates, with the sole purpose of hedging against fluctuations in the exchange rate. The Company seeks to mitigate exchange rate fluctuation risk in "foreign currency - accounts payable" related to goods imported for resale. Hedging is only executed based on the supporting documentation of these account payable commitments. This process is subjected to the Company's policy, which limits the amount and use of IFD, and provides specific requirements for purchase and payment.
The IFD authorized by our "Exposure to foreign currency exchange rate risk-reduction" policy is the FX- Forward. The FX-Forward contract is a specific agreement between WALMEX and the counterparty. That is why it is traded on the "over the counter" or OTC market through an ISDA contract (International Swap Dealers Association).
The Company only uses IFD with solvent financial institutions with solid credit capacity, and that are licensed and regulated to perform this kind of operation in the market. WALMEX's finance committee authorizes all counterparties based on credit quality ratings determined by international rating agencies, in order to reduce the risk of non-compliance and to ensure that the market value of open positions does not exceed the Company's maximum exposure and credit limits, the volume of operations executed with each authorized counterparty is permanently monitored.
FX-Forward are contracted for the purpose of economic hedging. The Company has not applied hedge accounting to these agreements and the fluctuations in "fair value" of these instruments are recognized directly to P&L during the corresponding period, as a financial income/expense.
Descripción genérica sobre las técnicas de valuación, distinguiendo los instrumentos que sean valuados a costo o a valor razonable, así como los métodos y técnicas de valuación [bloque de texto]
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Wal-Mart de México, S.A.B. de C.V. | Consolidado | |
Clave de Cotización: | WALMEX | Trimestre: 4D Año: 2022 |
The calculation agent or IFD valuation are counterparts which, have held the respective operations. In addition, the Company through its valuations SAP Treasury platform performs its independent valuations, which are compared monthly with those reported by the counterparties. The IFD signed with counterparties do not provide collateral or margin calls. They also do not have negotiated credit lines for the operation of the IFD.
In the calculation of the fair value for FX-Forward, standard valuation methodologies are used as well as widely accepted market variables that are endorsed internationally. The fair value is defined as the present value of the difference between the value of the underlying forward and value agreed at contract initiation, multiplied by the number of units of the underlying. These estimates are reviewed and approved by the Treasury department, which verifies the reasonableness of the results in relation to the valuations provided by authorized counterparties.
Discusión de la administración sobre las fuentes internas y externas de liquidez que pudieran ser utilizadas para atender requerimientos relacionados con instrumentos financieros derivados [bloque de texto]
The Company's operations provide resources to meet its IFD contract requirements. The Company also has various lines of credit that could be used, if needed, to meet its IFD obligations.
Explicación de los cambios en la exposición a los principales riesgos identificados y en la administración de los mismos, así como contingencias y eventos conocidos o esperados por la administración que puedan afectar en los futuros reportes [bloque de texto]
As of December 31st, 2022, the Company has not identified significant changes in the risk exposure previously identified. These include possible contingencies and events known or expected by the Administration.
The Company has identified the following main risks within its IFD portfolio:
a. Market risk: The Company is exposed to market risks related to variations in currency exchange rates resulting from changes in economic conditions at the local and international level, tax and monetary policies, liquidity, political events, disasters, etc. As a result, one of the primary objectives of the Company's IFD policy is to mitigate foreign exchange risk through the purchase of FX-Forward in order to protect the Company against exchange rate fluctuation in "foreign currency-accounts payable" and related to goods imports for resale. The Company does not authorize the purchase of IFD instruments for the purpose of speculation.
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Wal-Mart de México, S.A.B. de C.V. | Consolidado | |
Clave de Cotización: | WALMEX | Trimestre: 4D Año: 2022 |
b. Liquidity risk: Resources available to manage hedge operations are generated by the Company's operations.
c. Counterparty Credit risk: Credit risk related to IFD is mitigated and monitored through the established approval procedures to select the counterparty financial institutions. The Treasury department regularly monitors and updates (annually or more frequently if necessary), the required credit quality assessment and ratings of financial institution counterparties. In addition, the Company has established limits to the amount of IFDs that can be executed with approved counterparties in order to further mitigate risk.
d. Operational Risk. WALMEX's Board of Directors specifically authorized the strategy for the use of IFD and the Finance Committee approved the related policy. The policy regarding the use of IFD describes: the objective, the allowed derivative instruments, the limits and the control mechanisms required to ensure that derivative transactions are properly conducted. All this, in order to manage and minimize market, liquidity, credit and operational risk. The level of risk tolerance defined for the FX-Forward transactions is periodically reviewed by the Finance Committee, however, compliance with the established parameters is reviewed monthly in order to detect opportunities and, when appropriate, propose action plans.
Execution and compliance with the approved strategy is regularly monitored internally by the Treasury and Accounting departments. The results of that monitoring as well as identifications of inherent risks are periodically reported to the Treasury Vice-president and, if necessary, to the Board of Directors.
Additionally, the Treasury director is responsible for continuous monitoring and reporting to Treasury Vice- president of any events that may affect current IFD operations. In this case, the Treasury director is also responsible to propose to the Finance Committee actions to mitigate any events that may put the Company's results at risk.
The Company is also subject to periodic reviews of its IFD transactions by internal and external auditors who evaluate established processes and controls and the proper application thereof. The internal and external auditors also evaluate accounting records and the effect of IFD in the income statement and / or balance sheet accounts.
Información cuantitativa a revelar [bloque de texto]
As of December 31st, 2022, Fx-Forward contracts have a term of no more than four months, which are shown below:
Notional | Equivalent | |||||
Number of | Amount | Amount | ||||
Contracts | Million (USD) | Million (MXN) | ||||
New contracts current quarter | 393 | $ | 259 | $ | 5,156 | |
Maturity current quarter | 395 | $ | 356 | $ | 7,262 |
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Wal-Mart de México, S.A.B. de C.V. | Consolidado | |
Clave de Cotización: | WALMEX | Trimestre: 4D Año: 2022 |
Open contracts current | 271 | $ | 177 | $ | 3,518 |
The change in fair value during the three-months period ended December 31st, 2022, that was recognized for such contracts, amounts to MXN $21.5 million, net and it is presented in the finance income (cost) line items in the consolidated income (expense) of comprehensive results.
The fair value of these instruments represents less than 3% of total consolidated sales for the quarter or 2% of the assets. Therefore, the potential risk from the Company's use of these instruments is not significant.
Additionally, as of December 31st, 2022, there are no instances of non-compliance with IFD contracts, nor are there any margin calls or collateral required for any contracts. A summary of the outstanding IFD is as follows:
Summary of derivatives Financial Instruments
Type: Forwards | Purpose: Economic | Position: Large | |||||||||
Current quarter | Counterpart 1 | Counterpart 2 | Counterpart 3 | Counterpart 4 | Total | ||||||
Underliying value asset USD/MXN | |||||||||||
$19.4999 | |||||||||||
Notional amount (million pesos) | $ | 2,046 | $ | 600 | $ | 739 | $ | 134 | $ | 3,518 | |
Fair Value | $ | (18) | $ | (3) | $ | (6) | $ | (3) | $ | (30) | |
Settlements USD Next 12 months | $ | 3,518 | |||||||||
Previous quarter | |||||||||||
Underliying value asset USD/MXN | |||||||||||
$20.1670 | |||||||||||
Notional amount (million pesos) | $ | 2,702 | $ | 1,205 | $ | 1,067 | $ | 650 | $ | 5,624 | |
Fair Value | $ | (19) | $ | (28) | $ | 2 | $ | (6) | $ | (51) | |
Settlements USD Next 12 months | $ | 5,624 |
Market risk
Concerning the sensitivity analysis of market risks to which the Company is exposed, the currency exchange rate of the Mexican peso against the US dollar would not leave a material impact as demonstrated in the table below.
Scenarios of changes in currency exchange rate
Remote | Possible | Probable | Remote | Possible | Probable | |
-50% | -25% | -5% | 50% | 25% | 5% | |
Exchange rate 19.4999 9.7500 | 14.6249 | 18.5249 | 29.2499 | 24.3749 | 20.4749 |
Sensitivity
Scenario | -1,727.59 | -863.80 | -172.76 | 1,727.59 | 863.80 | 172.76 |
(Million MXN)
Liquidity and credit risk
The Company does not have liquidity risk from its IFD as of December 31st, 2022.
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Wal-Mart de México, S.A.B. de C.V. | Consolidado | |
Clave de Cotización: | WALMEX | Trimestre: 4D Año: 2022 |
The Company manages credit risk related to its portfolio of derivatives transactions by engaging only with recognized and creditworthy counterparties. As of December 31st, 2022, counterparty credit risk is immaterial.
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Disclaimer
Wal-Mart de Mexico SAB de CV published this content on 15 February 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 February 2023 21:18:50 UTC.
