Ryanair 2006 Annual Report Download - page 30

Segment Reporting
A segment is a distinguishable component of the group that
is engaged either in providing products or services (business
segment), or in providing products or services within a
particular economic environment (geographical segment),
which is subject to risks and returns different to those of
other segments.
The group’s primary reporting segments comprise
geographic segments relating to the origin of its turnover, as
the group only operates in one business segment, the
provision of a low fares scheduled airline service across a
European route network.
Share Based Payments
The group engages in equity settled share-based payment
transactions in respect of services received from certain of
its employees. The fair value of the services received is
measured by reference to the fair value of the share options
granted on the date of the grant. The cost of the employee
services received in respect of the share options granted is
recognised in the income statement over the period that the
services are received, which is the vesting period, with a
corresponding credit to equity. The fair value of the options
granted is determined using the Binomial Lattice option
pricing model, which takes into account the exercise price of
the option, the current share price, the risk free interest
rate, the expected volatility of the Ryanair Holdings plc share
price over the life of the option and other relevant factors.
Non market vesting conditions are taken into account by
adjusting the number of shares or share options included in
the measurement of the cost of employee services so that
ultimately, the amount recognised in the income statement
reflects the number of vested shares or share options
In accordance with the transition provisions in IFRS 1, Ryanair
has applied this fair value calculation to share option grants
that were made after November 7, 2002, but which had yet
to vest by January 1, 2005.
The company accounts for the fair value of share options
granted to employees of a subsidiary as an increase in its
investment in that subsidiary. Fair value of such options is
determined consistently with the accounting policy of the
group.
Foreign Currency Translation
Items included in the financial statements of each of the
group's entities are measured using the currency of the
primary economic environment in which the entity operates
(the “functional currency”). The consolidated financial
statements are presented in Euro, which is the functional
currency of each of the group's entities.
Transactions arising in foreign currencies are recorded at the
rates of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange
prevailing at the balance sheet date and all related exchange
gains or losses are accounted for through the income
statement. Non-monetary assets and liabilities denominated
in foreign currencies are translated to Euro at foreign
exchange rates ruling at the dates the transactions were
effected.
Derivative Financial Instruments*
Ryanair is exposed to market risks relating to fluctuations in
commodity prices, interest rates and currency exchange
rates. The objective of financial risk management at Ryanair
is to minimize the impact of commodity price, interest rate
and foreign exchange rate fluctuations on the group's
earnings, cash flows and equity.
To manage these risks, Ryanair uses various derivative
financial instruments, including interest rate swaps, foreign
currency forward contracts and commodity contracts. These
derivative financial instruments are generally held to
maturity and are not actively traded. The group enters into
these arrangements with the goal of hedging its operational
and balance sheet risk. However, Ryanair's exposure to
commodity price, interest rate and currency exchange rate
fluctuations cannot be neutralized completely.
From April 1, 2005, the group has applied the provisions of
IAS 39 in accounting for its derivatives. Derivative financial
instruments are recognised initially at fair value.
Subsequent to initial recognition, derivative financial
instruments continue to be restated to fair value.
Recognition of any resultant gain or loss depends on the
nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount
that the group would receive or pay to terminate the swap at
the balance sheet date, taking into account current interest
rates and the current creditworthiness of the swap
counterparties. The fair value of forward exchange contracts
and jet fuel contracts is their quoted market price at the
balance sheet date, being the present value of the quoted
forward price.
(Continued)
Statement of Accounting policies
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ANNUAL REPORT & FINANCIAL STATEMENTS 2006