NATS-Annual-Report-2015

Annual Report and Accounts 2015 | NATS Holdings Limited
Financial Statements 119
Notes forming part of the
consolidated accounts
(continued)
19. Financial instruments (continued)
Financial risk management objectives
The group’s treasury function is mandated by the Board to manage financial risks that arise in relation to underlying business needs.
The function provides services to the business, co-ordinates access to financial markets and monitors and manages financial risks
relating to the operations of the group. The function has clear policies and operating parameters. The Treasury Committee provides
oversight and meets three times a year to approve strategy and to monitor compliance with Board policy. The Treasury function does
not operate as a profit centre and the undertaking of speculative transactions is not permitted. The principal financial risks arising from
the group’s activities include market risk (including currency risk, interest rate risk and inflation risk), credit risk and liquidity risk. NATS
Limited and NATS Services had no borrowings. The principal financial risk in these entities is credit risk. Specific policies on interest rate
and liquidity risk management apply principally to NERL.
Market risk
The group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and inflation
rates. These risks are explained below. The group enters into a variety of derivative financial instruments to manage its exposure to
these risks, including:
- forward foreign exchange contracts to hedge the exchange risk arising on services provided to UK en route customers that are billed
in euro, and purchases from foreign suppliers settled in foreign currencies;
- interest rate swaps to mitigate the risk of rising interest rates; and
- index-linked swaps to mitigate the risk of low inflation.
Foreign currency risk management
The group’s principal exposure to foreign currency transaction risk is in relation to UK en route services revenue, accounting for 66% of the
group’s turnover (2014: 67%). Charges for this service are set in sterling, but are billed and collected in euro by applying a conversion rate
determined monthly by Eurocontrol, who administer the UK en route revenue collection. The conversion factor used is the average of the
daily closing rates for the month prior to the billing period. To mitigate the risk that exchange rates move between the date of billing and the
date on which the funds are remitted to NERL, forward foreign currency contracts are entered into. NERL seeks to hedge 95% of the UK en
route income that is forecast to arise by entering into forward foreign exchange contracts on a monthly basis.
The group trades with and provides finance to its overseas joint ventures and subsidiaries. Where appropriate the transactions are
conducted in sterling.
The group also enters into contracts for the purchase and sale of goods and services with overseas suppliers and customers who operate
in foreign currencies. To mitigate currency risk the contract value is hedged when a firm commitment arises, either through the use of
forward foreign currency contracts or by purchasing foreign currency at spot rates on the date the commitment arises or by setting aside
already available foreign currency.
The carrying amount of the group’s foreign currency denominated monetary assets and monetary liabilities at 31 March was as follows:
Assets Liabilities
2015 2014 2015 2014
£m £m £m £m
Euro 90.0 86.8 (23.8) (12.4)
Canadian dollar 0.9 0.1 (0.7) (0.2)
US dollar 0.6 0.2 (0.1) (0.1)
UAE dirham 0.6 - (0.1) -
Omani rials 0.4 - - -
Qatari riyal 0.3 2.4 - -
Kuwaiti dinar 0.3 0.2 - -
Singapore dollar 0.1 0.1 - -
Norwegian krone 0.1 - - (0.1)
Danish krone - 0.1 (0.1) -
93.3 89.9 (24.8) (12.8)
Financial
Statements