FY 2012 Annual Report - Orascom Development

F-69 Orascom Development 2012 Annual Report F-70
The gearing ratio at the end of the reporting period was as follows:
CHF 2012 2011
Debt (i) 603,860,850 536,210,821
Cash and cash equivalents (101,668,196) (79,399,104)
Net debt 502,192,654 456,811,717
Equity (ii) 977,851,660 1,095,216,884
Net debt to equity ratio 51.36% 41.71%
(i) Debt is defined as long- and short-term borrowings (excluding derivatives), as detailed in (note 31).
(ii) Equity includes all capital and reserves of the Group and non- controlling interests that are managed as capital.
40.2 Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial
liability and equity instrument are disclosed in 3.19 Financial instruments.
40.3 Categories of financial instruments
CHF 2012 2011
Financial assets
Cash and bank balances 101,668,196 79,399,104
Fair value through profit or loss ( FVTPL)
Held for trading non-derivative financial assets 291,121 7,294,817
Fair value through other comprehensive income (FVTOCI) 54,319,056 39,609,291
Financial assets measured at amortized cost 246,852,041 337,305,329
Financial liabilities
Derivative instrument in designated hedge accounting relationship 562,337 1,264,931
At amortised cost 1,008,615,520 784,305,564
40.4 Financial risk management objectives
In the course of its business, the Group is exposed to a number of financial risks. This note presents the Group’s objectives, policies
and processes for managing its financial risk and capital.
The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international
financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports
which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate
risk and other price risk), credit risk and liquidity risk. Other price risk includes equity price risk, settlement risk and commodity
price risk.
It is, and has been throughout 2012 and 2011, the Group’s policy not to use derivatives without an underlying operational
transaction or for trading (i.e. speculative) purposes.
The Group seeks to minimise the effects of these risks mainly through operational and finance activities and, on occasional basis,
using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s
internal policies and procedures approved by the Board of Directors, which provide written principles on foreign exchange risk,
interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess
liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative
purposes.
The Corporate Treasury function reports monthly to the Executive Management. The Group Treasury Director carries out risk
management under the Group’s guidelines.
40.5 Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see 40.6 below) and
interest rates (see 40.7 below).
Driven by the need, the Group’s policy is to enter into a variety of derivative financial instruments to manage its exposure to
foreign currency risk and interest rate risk, including:
– forward foreign exchange contracts to hedge the exchange rate risk arising on sales in foreign currency to the tourism / real
estate industry;
– interest rate swaps to mitigate the risk of rising interest rates
40.6 Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations
arise. The currencies, in which these transactions primarily are denominated, are US Dollar (USD), Euro (EUR) and Egyptian Pound
(EGP). Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
The Group’s main foreign exchange risk arises from sales in foreign currency to the tourism / real estate industry, which generates
a net foreign currency surplus for the Group. The Group has strong inflows in foreign currency, mainly US Dollar, Euro, Oman Rial
and Egyptian Pound.
Out of the total receivables on hand at the end of the reporting period, receivables in USD have accounted for 32% (2011: 40%), in
EUR for 7% (2011: 6%),in EGP for 46% (2011: 41%) and in CHF for 13% (2011: 11%) respectively.
To mitigate the above risk exposures, where possible, the Group borrows in matching currencies to create a natural hedge. The
following table shows the carrying amounts of borrowings, at the end of the reporting period, in the major currencies in which
they are issued.
Borrowing
CHF 2012 2011
USD 215,885,556 36% 243,970,612 46%
EGP 212,183,963 35% 194,250,742 36%
CHF 82,594,428 14% 9,307,207 2%
EUR 68,706,387 11% 77,275,959 14%
OMR 14,226,606 2% - -
AED 5,540,243 1% 11,406,301 2%
JOD 4,723,667 1% - -
Total 603,860,850 100% 536,210,821 100%
At the end of the reporting period, the carrying amounts of the Group’s major foreign currency denominated monetary assets
(mainly receivables and finance lease receivables) and monetary liabilities (mainly borrowings), at which the Group is exposed to
currency rate risk, are as follows:
CHF Liabilities Assets
2012 2011 2012 2011
Currency-USD 215,885,569 243,970,615 60,683,312 105,229,240
Currency-EUR 68,706,387 77,275,959 13,680,237 15,755,310
Currency-EGP 212,183,963 194,250,742 86,127,603 109,624,884
Residual foreign exchange exposure is managed by hedging through entering into foreign currency forward contracts.
Currency risk has also recently developed due to the Group’s investments in different markets such as those in Egypt, UAE, Oman,
Jordan, Morocco, Switzerland, Romania and the UK. Again, the Group borrows in the local currency of the investment and uses
the above mentioned strategies to mitigate residual currency risk.
40.6.1 Foreign currency sensitivity analysis
As discussed above, the Group is mainly exposed to the US Dollar (USD), Euro (EUR) and Egyptian Pound (EGP) arising from sales
in these currencies to the tourism / real estate industry.
The following table details the Group’s sensitivity to a 5% increase and decrease in CHF against the relevant foreign currencies.
The (5%) is the sensitivity rate used when reporting foreign currency risk internally to key management and represents
management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only
outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in
foreign currency rates.
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