SwissInfo

CONSOLIDATED FINANCIALSTATEMENTS
BarryCallebaut
Annual Report2010/11
27 Financial risk management
The nature ofits business exposes the Group to avariety of financial risks including the
effects of changes in market prices (commodity prices,foreign exchange rates,interest rates)
as well as credit risks and liquidity risks.
The Group’s overall strategy for managing these risks is consistent with the Group’s
objectives to maintain cost leadership, reduce earnings volatility in acost-effective manner
and minimize potential adverse effects of such market exposures on the financial performance
of the Group. The Group’s risk management continuously monitors the entities’
exposures to commodity price risk, interest rate risk and foreign currency risk as well as the
use of derivative instruments.
TheGroup manages its business based on the following two business models:
• Contract Business: Sales contracts for industrial or gourmet chocolate,whereBarry Callebaut
has entered into contracts with customers to deliver fixed quantities at fixed prices.These
contractually fixed prices are generally based on the forward market prices of the raw
material components valid at the contract date for the forward delivery date,atwhich the
chocolate is planned to be delivered to the customers.
•Price List Business: Barry Callebaut sets price lists for certain gourmet products. These
price lists are normally updated at intervals of six to twelve months. Customers buy
products based on the issued price lists without fixed commitments on quantities.
Commodity price risks
The Group’s purchasing and sourcing center operates as an integral part of the Group but
also acts as abroker-trader in the sense that it makes sourcing and risk management
decisions for cocoa beans based on market expectations, separate from the manufacturing
business and its third party sales commitments. Its objectives are togenerate profits from
fluctuations in cocoa prices or broker-trader margins.Additionally,the manufacturing of the
Group’s products requires raw materials such as cocoa beans,sweeteners,dairy,nuts,oil and
fats.Therefore, the Group is exposed to price risks relating to the trading business as well as
to the purchase and sale of rawmaterials.
The fair value of the Group’s open sales and purchase commitments and inventory changes
continuously in line with price movements in the respective commodity markets.The Group’s
policy is to economically hedge its commodity price risk resulting from its inventory,
commodity derivatives and purchase and sales contracts. Cocoa price risk in inventory is
hedged with short futures applying fair value hedge accounting. The related accounting
treatment is explained in the section “Summary of Accounting Policies” under the caption
“Derivative financial instruments and hedging activities”.
The Group Commodity Risk Committee (GCRC) is acommittee consisting of key risk
management stakeholders of the Group who meet on aregular basis (at least every six
weeks) to discuss Group Commodity Risk Management issues. The GCRC monitors the
Group’sCommodity Risk Management activities and acts as the decision-taking body for the
Group in this respect. The members of the GCRC include the Group’s Chief Executive
Officer (CEO), the Group’s Chief Financial Officer (CFO) –acting as Chairman of the
committee –, the President of Global Sourcing &Cocoa and the Group’s Head of Risk
Management (GRM).
115