Ryanair 2006 Annual Report Download - page 55

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(Continued)
Notes 55
ANNUAL REPORT & FINANCIAL STATEMENTS 2006
15 FINANCIAL INSTRUMENTS (Continued)
Group: (Continued)
e) Credit risk
The group holds significant cash balances which are invested on a short-term basis and are classified as either cash equivalents or
liquid investments. These deposits and other financial instruments (principally certain derivatives and loans as identified above)
give rise to credit risk on amounts due from counterparties. Credit risk is managed by limiting the aggregate amount and duration
of exposure to any one counterparty primarily depending on its third party market based ratings and by regular review of these
ratings. The group typically enters into deposits and derivative contracts with parties that have at least an “A” or equivalent credit
rating. The maximum exposure arising in the event of default on the part of the counterparty is the carrying value of the relevant
financial instrument.
The group’s revenues derive principally from airline travel on scheduled services, car hire, inflight and related sales. Revenue is
wholly derived from European routes. No individual customer accounts for a significant portion of total revenue.
f) Details of the group’s guarantees and the related accounting have been given in note 23.
g) Sensitivity analysis
Interest rate risk: If the group had not entered into its interest rate derivative agreements, a plus or minus one percentage point
movement in interest rates would impact the fair value of its liability at March 31, 2006 by approximately 49m. The earnings and
cashflow impact of such a change in interest rates would have been approximately plus or minus 10m per year.
Foreign currency risk: If the group had not entered into its foreign currency forward contracts, holding other variables constant,
if there was an adverse change of 10% in relevant foreign currency exchange rates, the market value of the group’s foreign currency
forward contracts outstanding at March 31, 2006 would decrease by 58m, the majority of which would have an impact on the
income statement in the period to March 31, 2007.
Company:
The company does not undertake hedging activities on behalf of itself or other companies within the group. Financial instruments
in the company primarily take the form of loans to subsidiary undertakings.
Amounts due to or from subsidiary undertakings (primarily Ryanair Limited) in the form of inter company loans are interest free and
are repayable on demand and further details of these have been given in notes 6 and 13. These inter company balances are
eliminated in the group consolidation.
The Euro is the base currency of the company’s balance sheet and all transactions entered into by the company are Euro
denominated. As such, the company does not have any significant foreign currency risk.
The credit risk associated with the company’s financial assets principally relates to the credit risk of the Ryanair group as a whole,
which is not rated by an external rating agency. Additionally the company has guaranteed certain of its subsidiary company
liabilities. Details of these arrangements are given in note 23.