SwissInfo

CONSOLIDATED FINANCIALSTATEMENTS
BarryCallebaut
Annual Report2010/11
TheGCRCreports via the GRM to the Group’sAudit, Finance,Risk, Quality &Compliance
Committee (AFRQCC) and must inform the latter about keyGroup Commodity Risk issues
and the keymitigation decisions taken.TheAFRQCC reviews and approves GCRCrequests
and makes surethat the commodity risk management strategy is consistent with the Group’s
objectives.Italso sets the Group’sValue at Risk (VaR) limit for the major rawmaterial components.The
AFRQCC makes recommendations to the BoardofDirectors if deemed necessary
and advises the BoardofDirectors on important risk matters and/or asks for approval.
In order to quantify and manage the Group’s consolidated exposure tocommodity price
risks,the concept of historical VaRisapplied.TheVaR concept serves as the analytical instrument
for assessing the Group’s commodity price risk incurred under normal market conditions.The
VaRindicates the loss which, within atime horizon of 10 days for raw materials,
will not be exceeded at aconfidence level of 95% using 7years of historical market prices for
each major raw material component. The VaR is complemented through the calculation of
the expected shortfall and worst cases as well as the use of stress test scenarios. However,
liquidity and credit risks are not included in the calculation and the VaRisbased on astatic
portfolio during the time horizon of the analysis.The GCRC breaks down the Group VaR
limit into aVaR limit for the Sourcing unit as well as limits in metric tonnes for the other risk
reporting units. The Board ofDirectors is the highest approval authority for all Group
Commodity Risk Management (GCRM) matters and approves the GCRM Policy aswell as
the Group VaRlimit.
The VaR framework of the Group is based on the standard historical VaRmethodology;
taking 2,000 days (equivalent to 7years) of the most recent prices,based on which the dayto-day
relative price changes are calculated. This simulation of past market conditions is not
predicting the future movement in commodity prices.Therefore, it does not represent actual
losses.Itonly represents an indication of the future commodity price risks.VaR is applied to
materials with prices considered to exceed certain volatility levels (e.g. cocoa beans, dairy
products, sweeteners, oils and fats), where risk arising from this volatility needs to be
managed according to management. As of August 31, 2011, the Group had atotal VaRfor
raw materials of CHF 6.3 million (2010: CHF 10.8 million) well within the Group limit. The
nominal exposure tocommodity price risks is shown under contractual maturities.
Foreign currency risks
The Group operates across the world and consequently is exposed to multiple foreign
currency risks, albeit primarily in EUR, GBP and USD. The Group actively monitors its
transactional currencyexposures and consequently enters into currencyhedges with the aim
of preserving the value of assets, commitments and anticipated transactions. The related
accounting treatment is explained in the section “Summary of Accounting Policies” under
the caption “Derivative financial instruments and hedging activities”.
All risks related to foreign currency exposures of assets and liabilities,certain unrecognized
firm commitments and highly probable forecasted purchases and sales arecentralized within
the Group’sIn-house Bank, where the hedging strategies are defined.
Accordingly,the consolidated currencyexposures arehedged in compliance with the Group’s
Treasury Policy, mainly by means of forwardcurrencycontracts entered into with high credit
quality financial institutions.The Group’sTreasury Policy imposes adual risk control framework
of both open position limits and near-time fair valuation of the net currencyexposures.
Both levels of control are substantially interlinked, avoiding excessive net currency
exposures and substantial volatility in the income statement.
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