Annual Report 2010 in PDF - BBA Aviation

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
Financial Statements
17. Derivative fnancial instruments – continued
As at 31 December 2010 the majority of the Group’s net borrowings were denominated in US Dollars as detailed in the table below:
86 Consolidated Income
2010 2009
Statement US Dollar Euros Sterling Other Total US Dollar Euros Sterling Other Total
87 Consolidated Statement of
Comprehensive Income
£m £m £m £m £m £m £m £m £m £m
88 Consolidated Balance Sheet
89 Consolidated Cash Flow
Statement
90 Consolidated Statement of
Changes in Equity
91 Accounting Policies of
the Group
95 Notes to the Consolidated
Financial Statements
126 Independent Auditor’s
Report to the Members of
BBA Aviation plc in Respect
of the Parent Company
Financial Statements
127 Company Balance sheet
128 Accounting Policies of
the Company
129 Notes to the Company
Financial Statements
134 Principal Subsidiary
Undertakings
135 Five Year Summary
136 Shareholder Information
110 — Consolidated Financial Statements
Cash and cash equivalents 63.5 14.0 28.4 1.8 107.7 66.8 11.6 35.5 1.5 115.4
Debt and finance leases (394.1) (2.9) (22.3) (2.3) (421.6) (471.0) (2.9) (30.3) (2.8) (507.0)
Net debt (330.6) 11.1 6.1 (0.5) (313.9) (404.2) 8.7 5.2 (1.3) (391.6)
At the end of 2010 the Group had outstanding $400 million (2009: $400 million) and €50 million (2009: €50 million) of cross-currency swaps.
The fair value of currency derivatives that are designated and efective as net investment hedges at the 2010 year end amounting to a payable
of £55.9 million (2009: payable £47.7 million) has been deferred in equity.
The Group manages its transactional foreign currency risk by hedging signifcant currency exposures in accordance with foreign exchange
policies that our subsidiaries have in place which have been pre-agreed between Group Treasury and the subsidiary. Each foreign exchange policy
is individually tailored to the foreign exchange exposures within the relevant subsidiary. Transaction currency risk is managed through the use of
spot and forward foreign exchange contracts. All committed exposures are fully hedged 100% and where signifcant foreign currency exposures
exist then we generally will also cover a percentage of the projected foreign currency fows depending on the certainty of these cash fows.
The transaction foreign exchange risk is measured by each subsidiary submitting monthly reports to Group Treasury which detail the
foreign currency exposure reported on the balance sheet as committed exposures and, for those subsidiaries with signifcant foreign exchange
transaction exposures, an additional report detailing the future projected foreign currency cash fows over the life of the policy. The predetermined
policy margin is shown against the projected exposures to determine whether there is a net exposure which needs to be hedged.
If this is the case, then foreign exchange spot or forward contract(s) will be undertaken by Group Treasury on behalf of the relevant subsidiary
with our relationship banks.
2010 2009
US Dollar Euros Other Total US Dollar Euros Other Total
£m £m £m £m £m £m £m £m
Net foreign exchange transaction
cash flow exposure
Derivative effect – foreign exchange
49.0 4.1 1.0 54.1 53.2 3.9 (0.6) 56.5
contracts spot/forwards
Net asset position excl. intercompany
(48.5) (4.1) (1.0) (53.6) (52.2) (3.9) 0.6 (55.5)
debt post hedging effect 0.5 – – 0.5 1.0 – – 1.0
The fair value of currency derivatives that are designated and efective as cash fow hedges amounting to £(2.3) million (2009: £(2.3) million) has
been deferred in equity. A loss of £3.6 million (2009: loss £5.7 million) has been transferred to the income statement in respect of contracts that
matured during the period.
Foreign exchange contracts that are not designated as cash fow hedges are used to hedge foreign currency fows through the BBA
Aviation plc company bank accounts and to ensure that the Group is not exposed to foreign exchange risk through the management of its
international cash pooling structure.
Changes in the fair value of foreign exchange contracts which have not been designated as cash fow hedges amounting to £1.3 million
(2009: £17.8 million) have been transferred to administrative expenses in the income statement in the year. The net impact on the Group’s result
for the period is immaterial, since the balances which these contracts relate to have had a similar but opposite efect on administrative expenses.
(ii) Cash Flow Interest Rate Risk
The majority of the Group’s debt and cash balances are based on foating interest rates which expose the Group to cash fow interest rate risk.
A very small proportion of the Group’s borrowings (£2.4 million) is issued at fxed interest rates and, therefore, overall the Group is not exposed to
fair value interest rate risk. The Group’s policy is to use a combination of debt and derivative instruments to fx proportions of the exposure for
varying periods based upon the maturity profle and the expectation of future interest rates. The Group uses interest rate swaps to manage its
exposure to the movements on these foating interest rates.