Sanofi (ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory)

D.20. Derivative financial instruments and market risks

The table below shows the fair value of derivative instruments as of December 31, 2017, 2016 and 2015:


(€ million)	Non-current assets		Current assets		Total assets		Non-current liabilities		Current liabilities		Total liabilities		Fair value at Dec. 31, 2017 (net)		Fair value at Dec. 31, 2016 (net)		Fair value at Dec. 31, 2015 (net)
Currency derivatives		-		133		133		(4)		(58)		(62)		71		(22)		(19)

operating		-		28		28		-		(25)		(25)		3		(25)		16

financial		-		105		105		(4)		(33)		(37)		68		3		(35)

Interest rate derivatives		63		-		63		(12)		-		(12)		51		100		152
Total		63		133		196		(16)		(58)		(74)		122		78		133

Objectives of the use of derivative financial instruments

Sanofi uses derivative instruments to manage operating exposure to movements in exchange rates, and financial exposure to movements in interest rates and exchange rates (where the debt or receivable is not contracted in the functional currency of the borrower or lender entity). On occasion, Sanofi uses equity derivatives in connection with the management of its portfolio of equity investments.

Sanofi performs periodic reviews of its transactions and contractual agreements in order to identify any embedded derivatives, which are accounted for separately from the host contract in accordance with IAS 39. Sanofi had no material embedded derivatives as of December 31, 2017, 2016 or 2015.

Counterparty risk

As of December 31, 2017, all currency and interest rate hedges were contracted with leading banks, and no single counterparty accounted for more than 16% of the notional amount of Sanofi’s overall currency and interest rate positions.

a) Currency derivatives used to manage operating risk exposures

Sanofi operates a foreign exchange risk hedging policy to reduce the exposure of operating income to exchange rate movements. This policy involves regular assessments of Sanofi’s worldwide foreign currency exposure, based on foreign currency transactions carried out by the parent company and its subsidiaries. Those transactions mainly comprise sales, purchases, research costs, co-marketing and co-promotion expenses, and royalties. To reduce the exposure of those transactions to exchange rate movements, Sanofi contracts hedges using liquid derivative instruments, mainly forward currency purchases and sales, and also currency swaps.

The table below shows operating currency hedging instruments in place as of December 31, 2017, with the notional amount translated into euros at the relevant closing exchange rate:


December 31, 2017					Of which derivatives designated as cash flow hedges						Of which derivatives not eligible for hedge accounting
(€ million)	Notional amount		Fair value		Notional amount		Fair value		Of which recognized in equity		Notional amount		Fair value
Forward currency sales		3,592		11		-		-		-		3,592		11
of which US dollar		1,043		15		-		-		-		1,043		15

of which Singapore dollar		870		1		-		-		-		870		1

of which Chinese yuan renminbi		327		(1)		-		-		-		327		(1)

of which Japanese yen		248		1		-		-		-		248		1

of which Saudi riyal		144		2		-		-		-		144		2
Forward currency purchases		1,649		(8)		-		-		-		1,649		(8)
of which Japanese yen		373		(3)		-		-		-		373		(3)

of which Singapore dollar		360		(4)		-		-		-		360		(4)

of which US dollar		205		(2)		-		-		-		205		(2)

of which Chinese yuan renminbi		196		-		-		-		-		196		-

of which Hungarian forint		81		1		-		-		-		81		1
Total		5,241		3		-		-		-		5,241		3

The above positions mainly hedge future material foreign-currency cash flows arising after the end of the reporting period in relation to transactions carried out during the year ended December 31, 2017 and recognized in the balance sheet at that date. Gains and losses on hedging instruments (forward contracts) are calculated and recognized in parallel with the recognition of gains and losses on the hedged items. Due to this hedging relationship, the commercial foreign exchange profit or loss on these items (hedging instruments and hedged transactions) will be immaterial in 2018.

The table below shows operating currency hedging instruments in place as of December 31, 2016, with the notional amount translated into euros at the relevant closing exchange rate:


December 31, 2016					Of which derivatives designated as cash flow hedges			Of which derivatives not eligible for hedge accounting
(€ million)	Notional amount		Fair value		Notional amount	Fair value	Of which recognized in equity	Notional amount		Fair value
Forward currency sales		3,963		(25)	-	-	-		3,963		(25)
of which US dollar		1,850		(17)	-	-	-		1,850		(17)

of which Chinese yuan renminbi		453		(2)	-	-	-		453		(2)

of which Swiss franc		253		(1)	-	-	-		253		(1)

of which Japanese yen		206		5	-	-	-		206		5

of which Singapore dollar		156		1	-	-	-		156		1
Forward currency purchases		1,517		-	-	-	-		1,517		-
of which US dollar		400		1	-	-	-		400		1

of which Japanese yen		283		(2)	-	-	-		283		(2)

of which Singapore dollar		233		1	-	-	-		233		1

of which Swiss franc		84		-	-	-	-		84		-

of which Hungarian forint		82		-	-	-	-		82		-
Total		5,480		(25)	-	-	-		5,480		(25)

The table below shows operating currency hedging instruments in place as of December 31, 2015, with the notional amount translated into euros at the relevant closing exchange rate:


December 31, 2015					Of which derivatives designated as cash flow hedges						Of which derivatives not eligible for hedge accounting
(€ million)	Notional amount		Fair value		Notional amount		Fair value		Of which recognized in equity		Notional amount		Fair value
Forward currency sales		2,142		27		-		-		-		2,142		27
of which US dollar		672		(2)		-		-		-		672		(2)

of which Chinese yuan renminbi		339		1		-		-		-		339		1

of which Japanese yen		159		(1)		-		-		-		159		(1)

of which Russian rouble		130		22		-		-		-		130		22

of which Singapore dollar		114		-		-		-		-		114		-
Forward currency purchases		905		(11)		-		-		-		905		(11)
of which US dollar		204		-		-		-		-		204		-

of which Russian rouble		109		(9)		-		-		-		109		(9)

of which Singapore dollar		104		(1)		-		-		-		104		(1)

of which Hungarian forint		90		(1)		-		-		-		90		(1)

of which Chinese yuan renminbi		86		2		-		-		-		86		2
Total		3,047		16		-		-		-		3,047		16

b) Currency and interest rate derivatives used to manage financial exposure

The cash pooling arrangements for foreign subsidiaries outside the euro zone, and some of Sanofi’s financing activities, expose certain Sanofi entities to financial foreign exchange risk (i.e. the risk of changes in the value of borrowings and loans denominated in a currency other than the functional currency of the borrower or lender). That foreign exchange exposure is hedged by Sanofi using firm financial instruments (currency swaps or forward contracts).

The table below shows financial currency hedging instruments in place, with the notional amount translated into euros at the relevant closing exchange rate:

2017

2016

2015

(€ million)

Notional
amount

Fair
value

Expiry

Notional
amount

Fair
value

Expiry

Notional
amount

Fair
value

Expiry

Forward currency sales

5,074

5,298

(28)

3,472

(44)

of which US dollar

3,542

2018

3,356

(37)

2017

2,171

(30)

2016

of which Japanese yen

867

2018

1,036

2017

612

(9)

2016

of which Australian dollar

281

2018

254

2017

266

(4)

2016

Forward currency purchases

4,657

(18)

5,980

2,623

of which Singapore dollar

2,281

(23)

2018

878

2017

310

2016

of which Canadian dollar

907

2018

145

(1)

2016

of which Czech koruna

431

2018

332

(1)

2017

245

(1)

2016

Total

9,731

11,278

6,095

(35)

These forward currency contracts generate a net financial foreign exchange gain or loss arising from the interest rate differential between the hedged currency and the euro, given that the foreign exchange gain or loss on the foreign-currency borrowings and loans is offset by the change in the intrinsic value of the hedging instruments. Sanofi may also hedge some future foreign-currency investment or divestment cash flows.

Sanofi manages its net debt in two currencies: the euro and the US dollar (see Note D.17.). The floating-rate portion of this debt exposes Sanofi to rises in interest rates, primarily in the Eonia and Euribor benchmark rates (for the euro) and in the US Libor and Federal Fund Effective rates (for the US dollar). To optimize the cost of debt or reduce the volatility of debt, Sanofi uses interest rate swaps, cross currency swaps and interest rate options to alter the fixed/floating rate split of debt. Such derivative instruments are predominantly denominated in euros and US dollars.

The table below shows instruments of this type in place as of December 31, 2017:


	Notional amounts by expiry date as of December 31, 2017																Of which designated as fair value hedges				Of which designated as cash flow hedges
(€ million)	2018		2019		2020		2021		2022		2023		Total		Fair value		Notional amount		Fair value		Notional amount		Fair value		Of which recognized in equity
Interest rate swaps

pay capitalized Eonia / receive 1.58%		-		1,550		-		-		-		-		1,550		58		1,550		58		-		-		-

pay capitalized Eonia / receive 0.06%		-		-		-		-		1,800		-		1,800		(6)		1,800		(6)		-		-		-

pay 1.81% / receive 3-month US dollar Libor		-		-		417		-		-		-		417		2		-		-		417		2		-

pay 3-month US dollar Libor / receive 2.22%		-		-		417		-		-		-		417		3		417		3		-		-		-

pay capitalized Eonia / receive 1.48%^(a)		-		-		-		-		42		57		99		(6)		-		-		-		-		-
Total		-		1,550		834		-		1,842		57		4,283		51		3,767		55		417		2		-

(a)

These interest rate swaps hedge fixed-rate bonds with a nominal of €99 million held in a Professional Specialized Investment Fund dedicated to Sanofi and recognized within “Loans, advances and other long-term receivables” (see Note D.7.).

The table below shows instruments of this type in place as of December 31, 2016:


	Notional amounts by expiry date as of December 31, 2016																Of which designated as fair value hedges				Of which designated as cash flow hedges
(€ million)	2017		2019		2020		2021		2022		2023		Total		Fair value		Notional amount		Fair value		Notional amount		Fair value		Of which recognized in equity
Interest rate swaps

pay capitalized Eonia / receive 1.58%		-		1,550		-		-		-		-		1,550		88		1,550		88		-		-		-

pay 3-month Euribor / receive 1.15%		428		-		-		-		-		-		428		3		428		3		-		-		-

pay 3-month US dollar Libor / receive 2.22%		-		-		475		-		-		-		475		10		475		10		-		-		-

pay 1.22% / receive 3-month & 6-month US dollar Libor		475		-		-		-		-		-		475		(2)		-		-		475		(2)		-

pay capitalized Eonia / receive -0.01%		-		-		-		-		300		-		300		1		300		1		-		-		-
Total		903		1,550		475		-		300		-		3,228		100		2,753		102		475		(2)		-

The table below shows instruments of this type in place as of December 31, 2015:


	Notional amounts by expiry date as of December 31, 2015																Of which designated as fair value hedges				Of which designated as cash flow hedges
(€ million)	2016		2017		2019		2020		2021		2022		Total		Fair value		Notional amount		Fair value		Notional amount		Fair value		Of which recognized in equity
Interest rate swaps

pay 1-month Euribor 0.26% / receive 2.73%		500		-		-		-		-		-		500		14		500		14		-		-		-

pay capitalized Eonia / receive 1.90%		1,000		-		1,550		-		-		-		2,550		128		2,550		128		-		-		-

pay 3-month Euribor / receive 1.15%		-		428		-		-		-		-		428		3		-		-		-		-		-

pay 3-month US dollar Libor / receive 2.22%		-		-		-		459		-		-		459		14		459		14		-		-		-

pay 1.22% / receive 3-month & 6-month US dollar Libor		-		459		-		-		-		-		459		(2)		-		-		459		(2)		(1)

Currency swaps hedging investments

pay JPY / receive €		175		-		-		-		-		-		175		(4)		-		-		-		-		-

pay USD / receive €		92		-		-		-		-		-		92		(1)		-		-		-		-
Total		1,767		887		1,550		459		-		-		4,663		152		3,509		156		459		(2)		(1)

c) Actual or potential effects of netting arrangements

The table below is prepared in accordance with the accounting policies described in Note B.8.3.:

2017

2016

2015

(€ million)

Derivative
financial
assets

Derivative
financial
liabilities

Derivative
financial
assets

Derivative
financial
liabilities

Derivative
financial
assets

Derivative
financial
liabilities

Gross carrying amounts before offset (a)

196

(74)

210

(132)

218

(85)

Gross amounts offset (in accordance with IAS 32) (b)

Net amounts as reported in the balance sheet
(a) – (b) = (c)

196

(74)

210

(132)

218

(85)

Effects of other netting arrangements (not fulfilling the IAS 32 criteria for offsetting) (d)

Financial instruments

(67)

(97)

(66)

Fair value of financial collateral

N/A

Net exposure (c) + (d)

129

(7)

113

(35)

152

(19)

Sanofi | CIK:0001121404 |

ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory