Annual Report 2010 in PDF - BBA Aviation

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Financial statements Notes to the Consolidated Financial Statements – continued 85 Independent Auditor’s Report to the Members of BBA Aviation plc in Respect of the Consolidated 17. Derivative fnancial instruments – continued Financial assets measured at fair value Financial Statements 2010 2009 86 Consolidated Income Notional Notional Statement amount Fair value amount Fair value £m £m £m £m 87 Consolidated Statement of Comprehensive Income Cash flow hedges 88 Consolidated Balance Sheet Interest rate swaps – – (124.2) 1.3 89 Consolidated Cash Flow Foreign exchange forward contracts (17.0) 0.4 (9.3) 1.1 Statement 90 Consolidated Statement of Changes in Equity 91 Accounting Policies of the Group Derivatives not in a formal hedge relationship Foreign exchange forward contracts 79.7 0.4 18.6 0.1 62.7 0.8 (114.9) 2.5 95 Notes to the Consolidated Financial Statements Financial liabilities measured at fair value 126 Independent Auditor’s 2010 2009 Report to the Members of BBA Aviation plc in Respect of the Parent Company Financial Statements Notional amount £m Fair value £m Notional amount £m Fair value £m 127 Company Balance sheet Cash flow hedges 128 Accounting Policies of the Company Interest rate swaps (222.9) (11.3) (205.0) (6.6) 129 Notes to the Company Financial Statements 134 Principal Subsidiary Undertakings 135 Five Year Summary 136 Shareholder Information 108 — Consolidated Financial Statements Foreign exchange forward contracts (104.8) (2.8) (41.7) (3.4) Net investment hedges Cross-currency swaps (297.5) (55.9) (292.7) (47.7) Derivatives not in a formal hedge relationship Foreign exchange forward contracts 48.5 (0.8) 36.3 (0.1) (576.7) (70.8) (503.1) (57.8) The maturity of derivative fnancial instruments is as follows: 2010 2009 Asset Liability Asset Liability fair value fair value fair value fair value £m £m £m £m Current Less than 1 year 0.7 (16.7) 1.1 (3.6) Total current 0.7 (16.7) 1.1 (3.6) Non-current 1 – 2 years 0.1 (20.4) 0.1 (25.0) 2 – 3 years – (30.0) – (16.8) 3 – 4 years – (3.7) – (12.4) 4 – 5 years – – 1.3 – More than 5 years – – – – Total non-current 0.1 (54.1) 1.4 (54.2) 0.8 (70.8) 2.5 (57.8) Collateral As part of the Group’s management of its insurable risks, a proportion of this risk is managed through self insurance programmes operated by its captive insurance company, BBA Aviation Insurances Limited, based in the Isle of Man. This company is a wholly-owned subsidiary of the Group and premiums paid are held to meet future claims. The cash balances held by the company are reported on the balance sheet within cash and cash equivalents. As is usual practice for captive insurance companies some of this cash is used as collateral against contingent liabilities (standby letters of credit) that have been provided to certain external insurance companies.
17. Derivative fnancial instruments – continued The table below details the contractual amount and maturity of the cash balances that have been pledged as collateral for these contingent liabilities: 2010 2009 US Dollar Sterling Total US Dollar Sterling Total £m £m £m £m £m £m BBA Aviation Insurances Limited 9.6 1.0 10.6 7.6 1.0 8.6 Total 9.6 1.0 10.6 7.6 1.0 8.6 Current Less than 1 year 9.6 1.0 10.6 7.6 1.0 8.6 Total current 9.6 1.0 10.6 7.6 1.0 8.6 The standby letters of credit have been issued via bank facilities that BBA Aviation Insurances Limited has in place. The amount of these facilities correspond to the amounts pledged as detailed in the table above. The amounts pledged are usually for less than one year and are secured by a legal charge, to the bank providing the letters of credit, over the cash balances of BBA Aviation Insurances Limited corresponding to the amount of the standby letters of credit. Financial Risk Factors Our activities expose us to a variety of fnancial risks: market risk (including currency risk and cash fow interest rate risk), credit risk and liquidity risk. Overall, our risk management policies and procedures focus on the uncertainty of fnancial markets and seeks to manage and minimise potential fnancial risks through the use of derivative fnancial instruments. The Group does not undertake speculative transactions for which there is no underlying f nancial exposure. Risk management is carried out by a central treasury department under policies approved by the Board of Directors of BBA Aviation plc. This department identif es, evaluates and hedges f nancial risks in close co-operation with our subsidiaries. The treasury policies cover specif c areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative fnancial instruments and the investment of excess liquidity. These policies are outlined further as described on page 65. Capital Risk Management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt to equity balance. The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to equity holders of the parent comprising capital, reserves and retained earnings. The Group’s policy is to borrow centrally to meet anticipated funding requirements. These borrowings, together with cash generated from the operations, are on-lent or contributed as equity to subsidiaries at market-based interest rates and on commercial terms and conditions. The Group is subject to two fnancial covenant requirements under its two main credit facilities: maximum net debt to underlying EBITDA of 3.5 times and minimum net interest cover of 3.0 times. The Group complied with these covenants during the year. In the primary $900 million facility the Group has the option of relaxing the fnancial covenants for a period of time if certain acquisition criteria are met. This acquisition spike is not incorporated, and therefore not available, under the $175 million facility. Market Risk Market risk is the risk of adverse f nancial impact due to changes in fair values or future cash f ows of f nancial instruments from f uctuations in foreign currency exchange rates and interest rates. The Group has well defned policies for the management of these risks and the management of these risks includes the use of derivative f nancial instruments. (i) Foreign Exchange Risk The Group has signifcant overseas businesses whose revenues, cash fows, assets and liabilities are mainly denominated in the currency in which the operations are located. The Group is, therefore, exposed to foreign currency translation risk from the translation of these overseas operations fnancial statements into Sterling. The Group’s policy is not to hedge the income statement translation exposure since such hedges have only a temporary efect. However, it is the Group’s policy to partially hedge the balance sheet in order to reduce the impact of foreign exchange rate movements on the net debt to EBITDA ratio. Therefore, it is the Group’s policy to seek to denominate the currency of its borrowings in US Dollars in order to match the currency of its cash fows, earnings and assets. Consolidated Financial Statements — 109
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Annual Report 2010
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Directors’ Report 2 Overview 2 Gr
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Group Structure Revenue by business
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Revenue Revenue increased by 4% on
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Corporate Governance The Board beli
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Michael Harper (66) Chairman Simon
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Worldwide Business Jet and Turbopro
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Commercial Aviation Our commercial
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Each of the fve businesses has a cl
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Principal Risks and Risk Potential
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Return on Invested Capital (ROIC) M
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Proft before tax increased by 42% t
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Financial Summary 2010 2009 Inc/(de
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ASIG United States of America, Cari
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Directors’ Report — 27
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Revenue 2010 2009 Inc/(dec) 20091 I
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ASIG Focused on growth 32 — Direc
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Key Facts ASIG is a world leading i
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London Heathrow: the A380 is a doub
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Financial Summary 2010 2009 Inc/(de
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Legacy Support United States of Ame
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Directors’ Report — 43
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Revenue 2010 2009 Inc/(dec) 20091 I
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Legacy Support Flexible resources m
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Key Facts Legacy Support is a leadi
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Houston, Texas: a Legacy Support st
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APPH Delivering continuous improvem
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Key Facts APPH has a niche focus an
Page 60: Runcorn, UK: a Jas39 Gripen nose la
Page 63 and 64: CSR leadership Group-wide Providing
Page 65 and 66: The Group also launched its new par
Page 67 and 68: A signifcant proportion of our debt
Page 69 and 70: Suppliers Payment Policy Substantia
Page 71 and 72: The Board has a formal schedule of
Page 73 and 74: a. Remuneration Committee Compositi
Page 75 and 76: Guidance on Audit Committees. The A
Page 77 and 78: Directors’ Remuneration Report I
Page 79 and 80: The following chart shows the balan
Page 81 and 82: d. Longer-term performance incentiv
Page 83 and 84: Annualised total shareholder return
Page 85 and 86: e. Pension: policy and implementati
Page 87 and 88: Independent Auditor’s Report to t
Page 89 and 90: Consolidated Statement of Comprehen
Page 91 and 92: Consolidated Cash Flow Statement Op
Page 93 and 94: Accounting Policies Basis of Accoun
Page 95 and 96: Property, Plant and Equipment Prope
Page 97 and 98: Notes to the Consolidated Financial
Page 99 and 100: 2. Proft for the year Proft for the
Page 101 and 102: 5. Dividends On 21 May 2010, the 20
Page 103 and 104: 8. Intangible assets - continued Th
Page 105 and 106: 10. Investments in associates Cost
Page 107 and 108: 13. Trade and other payables Amount
Page 109: 16. Bank overdraft and loans - cont
Page 113 and 114: 17. Derivative fnancial instruments
Page 115 and 116: 17. Derivative fnancial instruments
Page 117 and 118: 19. Pensions and other post-retirem
Page 119 and 120: 19. Pensions and other post-retirem
Page 121 and 122: 21. Share capital and reserves Allo
Page 123 and 124: 21. Share capital and reserves - co
Page 125 and 126: 23. Cash fow from operating activit
Page 127 and 128: 26. Related party transactions Tran
Page 129 and 130: Company Balance Sheet 2010 2009 Not
Page 131 and 132: Leases Where assets are f nanced by
Page 133 and 134: 6. Creditors: amounts falling due w
Page 135 and 136: 10. Capital and reserves Details of
Page 137 and 138: Five Year Summary 2010 2009 2008 20
Page 139 and 140: This Annual Report is addressed sol
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