Annual Report 2010 in PDF - BBA Aviation

A signifcant proportion of our debt is held in US dollars as a
hedge against our US dollar assets. A profle by currency is shown
in the table below:
(Debt)/Cash Profile by Currency
2010 2009
£m £m
Sterling 6 5
US dollars (331) (404)
Euros 11 9
Others – (2)
Total (314) (392)
The Group has a syndicated multi-currency revolving credit facility for
$900 million which expires in September 2012 and a syndicated multicurrency
revolving credit facility for $175 million which expires in
August 2011.
The Group policy with respect to cash deposits is to only have
deposits with pre-approved banks with short term credit ratings of
A1/P1 and with limits on the amounts deposited with each institution
dependent on their long term credit rating. Deposits are generally for
short term maturity (less than three months).
Financial Risk Management and Treasury Policies
The main fnancial risks of the Group relate to funding and liquidity,
interest rate fuctuations and currency exposures. A central treasury
department that reports directly to the Group Finance Director and
operates according to objectives, policies and authorities approved by
the Board, performs the management of these risks.
The overall policy objective is to use fnancial instruments to
manage fnancial risks arising from the underlying business activities
and therefore the Group does not undertake speculative transactions
for which there is no underlying fnancial exposure. More details are
set out in note 17 to the Consolidated Financial Statements.
Funding and Liquidity
The Group’s operations are fnanced by a combination of retained
profts, equity and borrowings. Borrowings are generally raised at
Group level from banks and then lent to operating subsidiaries. The
Group maintains sufcient available committed borrowing facilities to
meet any forecasted funding requirements.
At the end of 2010, the Group had two committed bank facilities
totalling $1,075.0 million of which $606.0 million was drawn across
them. These facilities are subject to cross-default. Given the level of
headroom available on the $900 million facility, there is no
requirement to refnance the $175 million facility. In addition, the
Group maintains uncommitted facilities for daily working capital
fuctuation purposes. At the end of 2010, the undrawn amount of
these uncommitted facilities totalled $31.4 million.
The rationale for preparing the fnancial statements on a going
concern basis is set out on page 84.
Interest Rate Risk Management
The interest rate exposure arising from the Group’s borrowing and
deposit activity is managed by using a combination of fxed and
variable rate debt instruments and interest rate swaps. The Group’s
policy with respect to interest rate risk management is to f x portions
of debt for varying periods based upon our debt maturity prof le and
an assessment of interest rate trends. At the end of 2010,
approximately 53% of the Group’s total borrowings were fxed at
weighted average interest rates of 3.0% for varying terms of up to
four years.
Currency Risk Management
The Group’s policy is to hedge all signifcant transactional currency
exposures through the use of forward currency contracts. Historically
it was the Group’s policy to hedge overseas capital employed,
including recognised goodwill, between 50% and 85% by means of
currency loans and currency swaps. In 2009 the Board undertook a
review of our hedging policy. In light of the fact that shareholders’
funds are no longer as relevant in our banking covenants, and so as to
minimise volatility in the leverage ratio, the decision was made to
phase out the use of cross currency swaps in hedging our overseas net
assets, and in future net assets will be hedged using underlying
borrowings only.
Directors’ Report — 65