RE: The Pound10 Jul 2018 10:49
Chilts,
My assumptions regarding expenditure in GBP is incorrect. The majority of expenses (83% for 2017) are in non-US currencies (likely GBP majority and NOK to an extent, from the reading below). Below are excerpts from the 2017 AR.
And so a weakening does help gains showing up on the P&L.
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Foreign currency risk
The Group is exposed to foreign current risk arising from movements in currency exchange rates. Such exposure arises from sales or purchases in currencies other than the Group’s functional currency (US Dollars) and the bond which is denominated in Sterling.
To mitigate the risks of large fluctuations in the currency markets, the hedging policy agreed by the Board allows for up to 70% of the non-US Dollar portion of the Group’s annual capital budget and operating expenditure to be hedged. For specific contracted capital expenditure projects, up to 100% can be hedged.
Approximately 2% (2016: 1%) of the Group’s sales and 83% (2016: 81%) of costs (including capital expenditure) are denominated in currencies other than the functional currency.
At 31 December 2016, the Group had a forward foreign currency contract in place for NOK37.1 with a strike price of NOK8.61/£1 which matured in Q1 2017 as a result of the exchange structure entered into in June 2016 (see note 20). As at 31 December 2017, all exchange structures have matured (see note 20).
The Group also enters into foreign currency swap contracts from time to time to manage short-term exposures.
The following table summarises the sensitivity to a reasonably possible change in the US Dollar to Sterling foreign exchange rate, with all other variables held constant, of the Group’s profit before tax due to changes in the carrying value of monetary assets and liabilities at the reporting date. The impact in equity is the same as the impact on profit before tax. The Group’s exposure to foreign currency changes for all other currencies is not material:
Change in US Dollar rate
Pre-tax profit
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
+10% (43,100) (48,250)
-10% 43,100 48,250
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