Ryanair 2016 Annual Report Download - page 163

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Foreign currency risk in relation to the Company’s trading operations largely arises in relation to non-euro
currencies. These currencies are primarily U.K. pounds sterling and the U.S. dollar. The Company manages this risk by
matching U.K. pounds sterling revenues against U.K. pounds sterling costs. Surplus U.K. pounds sterling revenues are
sometimes used to fund forward foreign exchange contracts to hedge U.S. dollar currency exposures that arise in relation
to fuel, maintenance, aviation insurance, and capital expenditure costs and excess U.K. pounds sterling are converted into
euro. Additionally, the Company swaps euro for U.S. dollars using forward currency contracts to cover any expected U.S.
dollar outflows for these costs. From time to time, the Company also swaps euro for U.K. pounds sterling using forward
currency contracts to hedge expected future surplus U.K. pounds sterling. From time to time the Company also enters into
cross-currency interest rate swaps to hedge against fluctuations in foreign exchange rates and interest rates in respect of
U.S. dollar denominated borrowings.
The Company’s objective for interest rate risk management is to reduce interest-rate risk through a combination
of financial instruments, which lock in interest rates on debt and by matching a proportion of floating rate assets with
floating rate liabilities. In addition, the Company aims to achieve the best available return on investments of surplus cash
– subject to credit risk and liquidity constraints. Credit risk is managed by limiting the aggregate amount and duration of
exposure to any one counterparty based on third-party market-based ratings. In line with the above interest rate risk
management strategy, the Company has entered into a series of interest rate swaps to hedge against fluctuations in interest
rates for certain floating rate financial arrangements and certain other obligations. The Company has also entered into
floating rate financing for certain aircraft, which is matched with floating rate deposits. Additionally, certain cash deposits
have been set aside as collateral for the counterparty’s exposure to risk of fluctuations on certain derivative arrangements
with Ryanair (restricted cash). At March 31, 2016, such restricted cash (including amounts held in Escrow not relating to
derivatives) amounted to €13.0 million (2015: €6.7 million; 2014: €13.3 million). Additional numerical information on
these swaps and on other derivatives held by the Company is set out below and in Note 11 to the consolidated financial
statements.
The Company utilises a range of derivatives designed to mitigate these risks. All of the above derivatives have
been accounted for at fair value in the Company’s balance sheet and have been utilised to hedge against these particular
risks arising in the normal course of the Company’s business. All have been designated as hedging derivatives for the
purposes of IAS 39 and are fully set out below.
Derivative financial instruments, all of which have been recognised at fair value in the Company’s balance sheet,
are analysed as follows:
At March 31,
2016
2015
2014
€M
€M
€M
Non-current assets
Gains on cash-flow hedging instruments – maturing after one year
88.5
554.5
0.4
88.5
554.5
0.4
Current assets
Gains on cash flow hedging instruments – maturing within one year
269.1
744.4
16.7
269.1
744.4
16.7
Total derivative assets
357.6
1,298.9
17.1
Current liabilities
Losses on cash flow hedging instruments – maturing within one year
(555.4)
(811.7)
(95.4)
(555.4)
(811.7)
(95.4)
Non-current liabilities
Losses on cash flow hedging instruments – maturing after one year
(111.6)
(73.4)
(43.2)
(111.6)
(73.4)
(43.2)
Total derivative liabilities
(667.0)
(885.1)
(138.6)
Net derivative financial instrument position at year-end
(309.4)
413.8
(121.5)
All of the above gains and losses were unrealised at the period-end.