Ryanair 2009 Annual Report Download - page 120

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€6.0 million (gross of tax), respectively. Based on Ryanair’s fuel consumption for the 2009 fiscal year, a change
of $1.00 in the average annual price per metric ton of jet fuel would have caused a change of approximately €1.1
million in Ryanair’s fuel costs. See “Item 3. Key Information—Risk Factors—Risks Related to the Company—
Changes in Fuel Costs and Fuel Availability Affect the Company’s Results and Increase the Likelihood that the
Company May Incur Losses.”
Under IFRS, the Company’s fuel forward contracts are treated as cash-flow hedges of forecast fuel
purchases for risks arising from the commodity price of fuel. The contracts are recorded at fair value in the
balance sheet and are re-measured to fair value at the end of each fiscal period through equity to the extent
effective, with any ineffectiveness recorded through the income statement. The Company has considered these
hedges to be highly effective in offsetting variability in future cash flows arising from fluctuations in the market
price of fuel because the fuel forward contracts typically relate to the same quantity, time, and location of
delivery as the forecast fuel purchase being hedged and the duration of the contracts is typically short.
Accordingly, the quantification of the change in expected cash flows of the forecast fuel purchase is based on
the fuel forward price, and in the 2009 fiscal year, the Company recorded no hedge ineffectiveness within
earnings. The Company has recorded no level of ineffectiveness on its fuel hedges in its income statements to
date. In the 2009 fiscal year, the Company recorded a negative fair-value adjustment of €93.3 million (net of
tax) within accumulated other comprehensive income in respect of jet fuel forward contracts, and in the 2008
fiscal year, the Company recorded a positive fair-value adjustment of €5.3 million (net of tax) within
accumulated other comprehensive income.
FOREIGN CURRENCY EXPOSURE AND HEDGING
In recent years, Ryanair’s revenues have been denominated primarily in two currencies, the Euro and
U.K. pound sterling. The U.K. pound sterling and the Euro accounted for approximately 32% and 58%,
respectively, of Ryanair’s total revenues in the 2009 fiscal year, as compared to approximately 38% and 53%,
respectively, in the 2008 fiscal year. As Ryanair reports its results in Euro, the Company is not exposed to any
material currency risk as a result of its Euro-denominated activities. Ryanair’s operating expenses are primarily
denominated in Euro, U.K. pounds sterling and U.S. dollars. Ryanair’s operations can be subject to significant
direct exchange rate risks between the Euro and the U.S. dollar because a significant portion of its operating
costs (particularly those related to fuel purchases) is incurred in U.S. dollars, while none of its revenues are
denominated in U.S. dollars. Appreciation of the Euro against the U.S. dollar positively impacts Ryanair’s
operating income because the Euro equivalent of its U.S. dollar operating costs decreases, while depreciation of
the Euro against the U.S. dollar negatively impacts operating income. It is Ryanair’s policy to hedge against a
certain portion of its exposure to fluctuations in the exchange rate between the U.S. dollar and the U.K. pound
sterling at the time Ryanair enters into U.S. dollar-denominated purchases. In general, Ryanair does not hedge
its operating surpluses and shortfalls in currencies other than the U.S. dollar and the U.K. pound sterling.
Hedging associated with operating expenses. In the 2009 and 2008 fiscal years, the Company entered
into a series of forward contracts, principally Euro / U.S. dollar forward contracts to hedge against variability in
cash flows arising from market fluctuations in foreign exchange rates associated with its forecast fuel,
maintenance and insurance costs. At March 31, 2009, the total unrealized gain relating to these contracts
amounted to €45.9 million, compared to an €88.5 million unrealized loss at March 31, 2008.
Under IFRS, these foreign currency forward contracts are treated as cash-flow hedges of forecast U.S.
dollar and U.K. pound sterling purchases to address the risks arising from U.S. dollar and U.K. pound sterling
exchange rates. The derivatives are recorded at fair value in the balance sheet and are re-measured to fair value
at the end of each reporting period through equity to the extent effective, with ineffectiveness recorded through
the income statement. Ryanair considers these hedges to be highly effective in offsetting variability in future
cash flows arising from fluctuations in exchange rates, because the forward contracts are timed so as to match
exactly the amount, currency and maturity date of the forecast foreign currency-denominated expense being
hedged. In the 2009 fiscal year, the Company recorded a positive fair-value adjustment of €40.2 million (net of
tax) within accumulated other comprehensive income in respect of these contracts, as compared to a negative
adjustment of €77.4 million in the 2008 fiscal year.
Hedging associated with capital expenditures. During the 2009 and 2008 fiscal years, the Company
also entered into a series of U.K. pound sterling / U.S. dollar and Euro / U.S. dollar contracts to hedge against
changes in the fair value of aircraft purchase commitments under the Boeing contracts, which arise from
fluctuations in the U.K. pound sterling / U.S. dollar and Euro / U.S. dollar exchange rates. At March 31, 2009,
the total unrealized gains relating to these contracts amounted to €144.0 million, while at March 31, 2008