Exchange rate risk
The Group operates worldwide and is therefore exposed to exchange rate risk caused by changes in the value of trade and financial flows expressed in currencies other than the accounting currency of individual Group companies.
In 2014, trade and financial flows exposed to the above exchange rates accounted for around 90.0% of the total exposure to exchange rate risk arising from trade and financial transactions (85.5% in 2013). We are also exposed to significant exchange rate risks on the following exchange rates:
Euro/Romanian Leu, Euro/Singapore Dollar, Argentine Peso/US Dollar and Euro/New Zeland Dollar; none of these exposures, taken individually, accounted for more than 1.45% of the overall exposure to transactional exchange rate risk in 2014 (1.6% in 2013).
It is our policy to hedge, where possible, exposures in currencies other than the accounting currencies of its individual companies. In particular, we hedge:
- Definite cash flows: invoiced trade flows and exposures arising from loans and borrowings.
- Projected cash flows: trade and financial flows arising from firm or highly probable contractual commitments.
The above hedges are arranged using derivative contracts.
The following sensitivity analysis shows the effects on net profit of a 5% and 10% increase/decrease in exchange rates versus closing exchange rates at 31 December 2014 and 31 December 2013.