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BAKKAVOR ANNUAL REPORT AND ACCOUNTS 2012
notes to the consolidated financial statements
continued
29
FINANCIAL INSTRUMENTS CONTINUED
Foreign currency risk management continued
Forward foreign exchange contracts
It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts. The Group
also enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions to minimise the
exposure generated.
The following table details the Sterling forward foreign currency contracts outstanding as at 29 December 2012:
Average Foreign Contract Fair
exchange currency value value
rate (m) (£m) (£m)
Outstanding contracts 2012 2011 2012 2011 2012 2011 2012 2011
Buy Euros:
Less than 3 months 1.24 1.16 26.0 16.4 21.0 14.2 0.2 (0.5)
3 to 6 months 1.25 1.17 12.0 16.5 9.6 14.2 0.1 (0.3)
6 to 12 months 1.25 1.17 3.5 9.0 2.8 7.7 – (0.1)
Buy US Dollars:
Less than 3 months 1.59 1.56 2.9 6.8 1.8 5.9 (0.1) (0.1)
3 to 6 months 1.59 1.59 1.1 2.0 0.7 1.2 – 0.1
6 to 12 months 1.59 1.58 1.5 1.4 1.0 0.9 – –
36.9 44.1 0.2 (0.9)
The following table details the Euro forward foreign currency contracts outstanding as at 29 December 2012:
Average Foreign Contract Fair Fair
exchange currency value value value
rate (m) (€m) (€m) (£m)
Outstanding contracts 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Buy US Dollars:
Less than 3 months – 1.37 – 0.5 – 0.4 – – – –
3 to 6 months 1.26 – 1.6 – 2.0 – 0.1 – – –
6 to 12 months 1.25 1.38 6.4 10.4 8.0 7.5 0.3 (0.5) 0.3 (0.5)
10.0 7.9 0.4 (0.5) 0.3 (0.5)
The following table details the South African Rand (ZAR) forward foreign currency contracts outstanding as at 29 December 2012:
Average Foreign Contract Fair Fair
exchange currency value value value
rate (m) (ZARm) (ZARm) (£m)
Outstanding contracts 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Buy Sterling:
Less than 3 months 13.04 12.72 0.2 0.2 2.0 2.8 (2.8) (1.6) (0.2) (0.1)
3 to 6 months 13.68 12.93 0.2 0.1 3.0 1.0 (2.8) (0.4) (0.2) (0.1)
6 to 12 months 13.63 – 0.2 – 2.5 – (2.0) – (0.1) –
7.5 3.8 (7.6) (2.0) (0.5) (0.2)
Interest rate risk management
The Group is exposed to interest rate risk on borrowings. The risk is managed by maintaining an appropriate mix between fixed and floating rate
borrowings. Interest rate risk management balances debt financing as a tool to improve the returns through leverage in the capital structure with the
potential for an increase in interest rates to impact profits negatively. The Group also uses derivative financial instruments such as interest rate swaps
to minimise the risk associated with variable interest rates. As a result of this policy, at the year end 8.4% of the Group’s borrowings were covered by
interest rate swaps and collars (2011: 48%). The Group has in issue £350 million of 8.25% fixed rate Senior Secured Notes that are listed on the Irish
Stock Exchange (see note 23). Board approval is required for the use of any interest rate derivative. Further information on interest rate risk is provided
in the Our Risks section on page 49 and 50.
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