47153 AG Barr Annual Report 2025 AW4 SQ WEB - Flipbook - Page 181
Strategic Report
Corporate Governance
Accounts
25. Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest rate risk and price risk), credit risk
and liquidity risk. The Board has delegated the management of the Group’s overall financial risk programme to the Treasury and Commodity Committee; this risk programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial
instruments to hedge certain risk exposures.
Financial risk management is carried out in accordance with policies approved by the Board of Directors. Management identifies, evaluates and manages financial risks
in close cooperation with the Group’s business units. The Board provides guidance on overall market risk management, including use of derivative financial instruments
and investment of excess liquidity.
In addition, the Treasury and Commodity Committee deals with a range of other treasury matters, details of which are provided in the Corporate Governance Report.
Market risk
Foreign exchange risk
The Group operates internationally. The Group primarily buys and sells in Sterling but does make purchases and sales denominated in US Dollars and Euros. Due to the
hedging arrangements that have been in place for the year ended 25 January 2025, if Sterling had weakened/strengthened by 5% against the US Dollar or Euro, with all other
variables held constant, there would not have been a material effect on post-tax profit (year ended 28 January 2024: no material impact on post-tax profit). See also Note 13
for information regarding hedging.
The Group periodically enters into option contracts to purchase foreign currencies where the value and volume of trading purchases is known. The Treasury and Commodity
Committee assesses whether hedge accounting should be applied for each foreign exchange option contract.
Price risk
The Group is not exposed to equity securities price risk because no such investments are held by the Group other than within pension scheme assets.
The Group purchases a wide range of commodities in the ordinary course of business. Exposure to changes in the market price of certain of these commodities, including
sugar, plastic, aluminium and mango, is managed through the use of forward physical supply contracts, primarily to convert floating or indexed prices to fixed prices.
The use of such contracts to hedge commodity exposures is governed by the Group’s risk policies and is continually monitored by the Treasury and Commodity Committee.
Commodity derivatives also provide a way to meet customers’ pricing requirements whilst achieving a price structure consistent with the Group’s overall pricing strategy.
All of the Group’s commodity derivatives are treated as “own use” contracts, which are outside the scope of IFRS 9, since they are both entered into, and continue to be held,
for the purposes of the Group’s ordinary operations, and are not net settled (the Group takes physical delivery of the commodity concerned). “Own use” contracts do not
require accounting entries until the commodity purchase crystallises.
The majority of the Group’s forward physical contracts and commodity derivatives have original maturities of less than one year.
As all of the commodity contracts qualify for the “own use” treatment, no sensitivity analysis has been carried out.
Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from long-term borrowings and short-term investments. Borrowings and investments are obtained at fixed rates reducing the Group’s
exposure to cash flow interest rate risk.
For the year ended 25 January 2025, if interest rates on Sterling-denominated borrowings at that date had been 1.0% higher/lower, with all other variables held constant,
there would have been an immaterial change in the post-tax profit for the year (year ended 28 January 2024: immaterial impact on post-tax profit).
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