Singapore Airlines 2015 Annual Report Download - page 196

Notes to the Financial Statements
31 March 2015
38 Financial Risk Management Objectives and Policies (in $ million) (continued)
(a) Jet fuel price risk (continued)
Sensitivity analysis on outstanding fuel hedging contracts:
The Group The Company
31 March 31 March
2015 2014 2015 2014
Effect on equity Effect on equity
Increase in one USD per barrel 35.1 31.2 28.8 25.5
Decrease in one USD per barrel (35.1) (31.2) (28.8) (25.5)
(b) Foreign currency risk
The Group is exposed to the eects of foreign exchange rate fluctuations because of its foreign currency denominated
operating revenues and expenses. For the financial year ended 31 March 2015, these accounted for 52.1% of total revenue
(FY2013/14: 53.1%) and 65.8% of total operating expenses (FY2013/14: 66.9%). The Group’s largest exposures are from
United States Dollar, Euro, UK Sterling Pound, Swiss Franc, Australian Dollar, New Zealand Dollar, Japanese Yen, Indian
Rupee, Hong Kong Dollar, Chinese Yuan, Korean Won and Malaysian Ringgit. The Group generates a surplus in all of these
currencies, with the exception of USD. The deficit in USD is attributable to capital expenditure, fuel costs and aircra
leasing costs – all conventionally denominated and payable in USD.
The Group manages its foreign exchange exposure by a policy of matching, as far as possible, receipts and payments in
each individual currency. Surpluses of convertible currencies are sold, as soon as practicable, for USD and SGD. The Group
also uses forward foreign currency contracts and foreign currency option contracts to hedge a portion of its future foreign
exchange exposure. Such contracts provide for the Group to sell currencies at predetermined forward rates, buying either
USD or SGD depending on forecast requirements, with settlement dates that range from one month up to one year. The
Group uses these currency hedging contracts purely as a hedging tool. It does not take positions in currencies with a view
to making speculative gains from currency movements.
Cash flow hedges
As at 31 March 2015, the Company holds USD310.3 million (2014: USD285.3 million) in short-term deposits to hedge
against foreign currency risk for a portion of the forecast USD capital expenditure in the next 10 months. A fair value gain of
$22.3 million (2014: loss of $0.4 million) is included in the fair value reserve in respect of these contracts.
During the financial year, the Group entered into financial instruments to hedge expected future payments in USD and
SGD. The cash flow hedges of the expected future purchases in USD and expected future payments in SGD in the next
12 months are assessed to be highly eective and at 31 March 2015, a net fair value gain before tax of $67.1 million (2014:
loss before tax of $21.1 million), with a related deferred tax liability of $11.5 million (2014: deferred tax credit of $3.6 million),
is included in the fair value reserve in respect of these contracts.
194 FINANCIAL