Annual Report 2012 - Indesit

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Consolidated financial statements at 31 December 2012 – Notes currency of the Parent. These changes do not give rise to an immediate difference between expected and actual cash flows, but merely have an accounting effect on the Group’s consolidated equity. The effect on cash flows only arises in the event of equity transactions involving Group companies that prepare foreign currency financial statements (e.g. capital reductions, payment of dividends, corporate liquidations etc.). The Group is exposed to the following main currencies at 31 December 2012: the British pound, the Polish zloty, the Russian ruble, the Turkish lira, the US dollar and the Ukrainian grivna. Exchange risk is managed by the Central Treasury Department, which systematically identifies outstanding exposures and those deriving from highly likely future transactions, and arranges the related hedges in compliance with the Treasury Policy. The principal Policy guidelines envisage: • the hedging of economic risk in accordance with the guidelines approved each year by the Board of Directors; • the hedging of translation risk only if there is a material risk of failure to comply with financial covenants and, in any case, subject to approval by the Chief Executive Officer; • identification of the derivative financial instruments that may be used. The instruments allowed by the Treasury Policy comprise foreign currency loans and investments, as well as forwards, options and collars traded over the counter or in regulated markets. Derivatives hedging pre-transaction risk are arranged with a time horizon of not more than one year and are managed using the rules applying to cash flow hedges. The year-end value of the hedging reserve relating to such derivatives is therefore released in full to the income statement in the following year. Derivatives hedging transaction risk generally do not have a duration of more than one month and are systematically renewed consistent with the level of the underlying exposure. In general, these financial instruments provide a natural hedge and are not managed using hedge accounting rules; accordingly, pursuant to IAS 39, any changes in fair value are recognized directly in the income statement. The Group manages and measures the exposure to exchange-rate risk using valuation methodologies (VaR, scenario analysis, stress tests etc.) that make reference to historical volatility parameters for the currencies concerned, as well as those observable in the market on the measurement date. These parameters are verified and updated at least every quarter, consistent with the Group’s budgeting cycles. 94
Consolidated financial statements at 31 December 2012 – Notes Sensitivity of the value of derivatives With regard to the derivative contracts outstanding at 31 December 2012, the effects on the Group’s income statement of hypothetical, 10% negative changes in the exchange rates of the principal currencies used by the Group have been estimated. Currency Sensitivity 2012 Sensitivity 2011 Change % EUR/GBP 15.4 11.6 -10% EUR/PLN (3.1) (8.5) -10% EUR/TRY (3.0) (1.0) -10% EUR/RUB (4.1) 0.0 -10% EUR/USD 0.1 n.a. -10% PLN/USD (0.6) n.a. -10% TRY/USD (0.4) (0.5) -10% Total 4.2 1.6 Sensitivity of operating profit Considering the principal currencies to which the Group is exposed, a 10% increase (decrease) in each currency, with respect to their average exchange rates during 2012, would have had an adverse effect on the Group’s operating profit (ignoring the tax effect) of about 66.5 million euro (positive effect of about 81.3 million euro), assuming no changes in other factors. The model assumes the same distribution of revenues and costs as in 2012. The simulation does not include: • any external effects (e.g. market or competitive dynamics) or internal effects (behavior and actions taken by the Group) as a result of such changes in exchange rates; • the effects of hedging via the use of derivatives. Positive variation effect of 10% of currency on operating profit (million euro) GBP RUB TRY PLN USD Total Operating profit (51.5) (27.4) (6.5) 7.7 11.2 (66.5) % effect on total 77.3% 41.2% 9.8% -11.5% -16.8% 100.0% Negative variation effect of 10% of currency on operation profit (million euro) GBP RUB TRY PLN USD Total Operating profit 62.9 33.5 7.9 (9.4) (13.7) 81.3 % effect on total 77.3% 41.2% 9.8% -11.5% -16.8% 100.0% 95
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Annual Report 2012 - Indesit

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