2005 Annual report - Virbac

67
Inventories and work-in-progress
Inventories and work-in-progress are stated at the lower of
cost and net realisable value.
Inventories of raw materials and supplies are measured using
the weighted average cost method, whereas finished
products are measured using the FIFO (“First in, First out”)
method. The cost of acquisition of raw materials inventories
includes all incidental purchase costs.
Work-in-progress and finished goods are measured at their
actual manufacturing cost including direct and indirect
production costs.
Finished products are measured in each subsidiary at the
price invoiced by the parent company plus shipping costs;
the margin included in these inventories is cancelled in the
consolidated financial statements, using the average full
production cost recorded at Virbac SA.
A provision is recognised to reduce inventories to their net
realisable value when products are damaged or become
unusable or when the likely selling prices of these products,
assessed on the basis of the market, seem lower than the
gross inventory amount.
Trade receivables
Trade receivables are classified as current assets to the extent
that they form part of the Group’s normal operating cycle.
Trade receivables are measured and recognised at the initial
amount of the invoice, less provisions for doubtful debts in
the case of any irrecoverable amounts. An estimate of the
amount of the doubtful debts is made when it is no longer
probable that the receivable will be recovered in full. Bad
debts are written off when identified as such.
Cash and cash equivalents
This category comprises bank balances, investments and
cash equivalents that are very liquid. Bank accounts that are
subject to restrictions (blocked accounts) are not included
in cash but are reclassified as financial assets.
Treasury shares
Those of the parent company’s shares that are held by the
parent company or its consolidated subsidiaries (whether
classified in the parent company’s financial statements as
financial assets or marketable securities), are recognised as
a deduction from shareholders’ equity. The amount of the
deduction is equal to the acquisition cost of the shares
concerned. Changes in fair value over the period of ownership
are not recognised. Any gain or loss on disposal of these shares
is recognised (net of tax) directly in shareholders’ equity and
does not form part of the profit or loss for the year.
Translation adjustments
This item represents on the one hand the translation
adjustment on opening net assets of foreign companies,
resulting from differences between the exchange rate on
the date on which they were first consolidated and the rate
ruling on the balance sheet date and, on the other hand,
the translation adjustment on the profit or loss for the year,
resulting from differences between the rate used to translate
the income statement (average rate) and the rate ruling on
the balance sheet date.
Consolidated reserves
This item represents the interests of the parent company
in the reserves accumulated by consolidated companies since
they were first consolidated into the Virbac Group.
Minority interests
This item represents the share of shareholders external
to the Group in the shareholders’ equity and results of
consolidated companies.
Risk exposure and management
❖ Exchange rate risk
Virbac carries out transactions in currencies other than the
euro, its reference currency. Given the Group’s exchange rate
risk exposure, currency fluctuations have a significant impact
on its income statement both in terms of translation risk and
transaction risk. The Group therefore endeavours to protect
its profit against adverse movements in the various currencies
in which its sales or certain specific transactions are
denominated and defines the hedged risk as being only the
spot risk. Virbac specifically hedges a portion of its foreign
currency denominated future sales and firm orders (net
export exposure) as well as the foreign currency denominated
dividends of consolidated companies or certain intra-group
loans. Foreign exchange forwards are measured at their
forward rate.
❖ Interest rate risk
Virbac is financed by means of a variable-rate credit line.
This credit line is hedged by swaps, the aim of which is
to eliminate changes in interest flows linked to forecast
drawdowns of the variable-rate credit line.
Financial liabilities
❖ Recognition and measurement of financial liabilities
Borrowings and other financial liabilities are recognised
at depreciated cost, calculated on the basis of the actual
interest rate.
Derivatives and hedge accounting
The aim of hedge accounting is to offset the impact of
the hedged item and the hedging instrument in the income
statement.
To qualify for hedge accounting, hedges must comply with