Brambles 2006 Annual Report - Alle jaarverslagen

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114 Brambles 2006 Annual Report NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 30 June 2006 Note 17. Derivative financial instruments 2006 US$m Current assets 2005 US$m Current liabilities 2006 US$m Interest rate swaps – cash flow hedges 5.3 – 0.3 – Forward foreign exchange contracts – held for trading 1.8 – – – 2005 US$m 7.1 – 0.3 – Non-current assets 2006 US$m 2005 US$m Interest rate swaps – cash flow hedges 4.1 – 4.1 – a) Financial risk management Brambles is exposed to a variety of financial market risks, including the effects of fluctuations in interest rates and exchange rates, for which Brambles has the following risk policies in place: Interest rate risk Brambles’ exposure to the volatility in funding costs is managed by maintaining a mix of fixed and floating rate instruments within selected target bands over defined periods. In most cases, interest rate derivatives are used to achieve the targets synthetically. Foreign exchange risk Exposure to foreign exchange risk generally arises in transactions affecting either the value of transactions translated to the functional currencies of overseas subsidiaries or affecting the value of assets and liabilities of overseas subsidiaries when translated back to the Group’s presentation currency. Foreign exchange hedging is used when a transaction exposure exceeds certain thresholds and as soon as a defined exposure arises. Brambles uses standard derivative financial instruments to manage its risk exposure in the normal course of business. Brambles does not trade in financial instruments. Hedge activities are conducted through Treasury on a centralised basis in accordance with Board policies and guidelines through standard operating procedures and delegated authorities. Disclosures relating to the fair value, interest rate risk, credit risk and currency of the derivative financial instruments are set out in Note 30. b) Hedging activities Interest rate swaps – cash flow hedges Brambles enters into various interest rate risk management transactions for the purpose of managing finance costs to achieve more stable and predictable finance expense results. The instruments primarily used are interest rate swaps and caps. During 2006, Brambles had interest rate swap transactions with various banks hedging variable rate borrowings in US dollar, sterling and euro. The purpose of the interest rate swaps was to hedge variable interest expense under borrowings against rising interest rates. Interest rate swaps achieve this by synthetically converting the variable interest rate payment into a fixed interest liability on the dates on which interest is payable on the underlying debt. The fair value of these contracts at reporting date was US$9.1 million. At reporting date, the notional principal amounts and periods of expiry of the interest rate swap contracts were as follows: 2006 US$m 2005 US$m Less than 1 year 196.3 590.7 1 – 2 years 46.3 437.2 2 – 3 years 242.6 44.9 3 – 4 years – 239.8 The terms of the contracts have been negotiated to match the projected drawdowns and rollovers of variable rate bank debt. The gain or loss from remeasuring the interest rate swaps at fair value is deferred and recognised in the hedging reserve in equity, to the extent that the hedge is effective, and reclassified into profit and loss when the hedged interest expense is recognised. Any ineffective portion is charged to the income statement. In 2006, all interest rate swaps were effective hedging instruments.
115 Brambles 2006 Annual Report Forward foreign exchange contracts – cash flow hedges Brambles also enters into forward foreign exchange contracts to hedge currency exposures arising from normal commercial transactions involving the purchase of equipment and services and other corporate expenditure and receipts. During 2006, Brambles had entered into forward foreign exchange transactions with various banks in a variety of cross-currencies for terms ranging up to six months. Most contracts create an obligation on Brambles to take receipt of or deliver a foreign currency which is used to fulfil the foreign currency sale or purchase order. There were no material open contracts at reporting date. The gain or loss from remeasuring the foreign exchange contracts at fair value is deferred and recognised in the hedging reserve in equity to the extent that the hedge is effective, and reclassified into profit and loss when the hedged item is recognised. Any ineffective portion is charged to the income statement. For 2006, all foreign exchange contracts were effective hedging instruments. Forward foreign exchange contracts – held for trading Brambles entered into forward foreign exchange contracts for the purpose of hedging various cross border intercompany loans to overseas subsidiaries. In this case, the forward foreign exchange contract provides an economic hedge against exchange fluctuations in the foreign currency loan balance. The face value and terms of the foreign exchange contracts match the intercompany loan balances and maturities. Gains and losses on realignment of the intercompany loan and foreign exchange contracts to spot rates are offset in the income statement. Consequently, these foreign exchange contracts are not designated for hedge accounting purposes. Brambles has the following contracts outstanding at reporting date: Buy/sell US$m Maturity Average exchange rate Australian dollar/Canadian dollar 19.8 August 2006 0.8168 Australian dollar/US dollar 14.9 August 2006 0.7329 Australian dollar/NZ dollar 3.0 August 2006 1.2238 Australian dollar/Mexican peso 13.2 August 2006 8.3123 Sterling/euro 534.3 August 2006 1.4466 US dollar/euro 1.1 December 2006 1.2779 These contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. Any changes in fair values are taken to the income statement immediately. The fair value of these contracts at reporting date was US$1.8 million. c) Transition to IAS 32/AASB 132 and IAS 39/AASB 139 Brambles has taken the exemption available under IFRS 1/AASB 1 to apply IAS 32/AASB 132 and IAS 39/AASB 139 from 1 July 2005. Impacts resulting from the transition are disclosed in Notes 38 and 39. Note 18. Other assets 2006 US$m 2005 US$m Current Prepayments 32.1 39.4 Current tax receivable 9.4 16.7 Other investments – 10.7 41.5 66.8 Non-current Prepayments 0.6 15.0
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DIRECTORY Brambles Industries Limit
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