RWS Annual Report 2022 web - Flipbook - Page 142
Notes to the Consolidated Financial Statements (continued)
Foreign currency risk
The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in the functional currency,
with cash generated in that currency from their own operations. Transaction exposures arise from non-local currency
sales and purchases with gains and losses on transactions arising from fluctuations in exchange rates being recognised
in the statement of comprehensive income. Where we have a material or recurring exposure, the policy is to seek to
mitigate the risk using forward foreign exchange contracts.
Approximately 65% (2021: 61%) of Group external sales in the reporting period were denominated in USD, while a
further 21% were denominated in Euros (2021: 24%). Similarly, the Group’s cost base was 39% in USD (2021: 31%) and
21% in Euros (2021: 24%).
The Group has a number of intercompany loans designated as quasi equity at inception. This designation is made
where loan transactions between Group companies represent, in substance, long term investments in that subsidiary
rather than intercompany loan transactions. These loans are often denominated in a currency other than the functional
currency of at least one of the counterparties. Foreign currency translation on these loans is recognised in other
comprehensive income in the statement of comprehensive income until the underlying investment is disposed of at
which point they are recognised in profit or loss in the statement of comprehensive income.
Assets and liabilities of Group entities located in Germany, Switzerland, the United States, Japan, China, India, Argentina
and Australia, are principally denominated in their respective currencies and are therefore not materially exposed to
currency risk. On translation to Sterling gains or losses arising are recognised directly in equity.
Moravia IT s.r.o. as discussed below applies cash flow hedge accounting to hedge its operating costs.
The carrying amounts of the Group’s material foreign currency denominated monetary assets and liabilities at the
reporting date are as follows:
Assets
2022
£m
Assets
2021
£m
Liabilities
2022
£m
Liabilities
2021
£m
46.7
45.4
19.4
15.7
Euros
US Dollars
156.1
138.9
54.0
64.0
202.8
184.3
73.4
79.7
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 20% (2021: 120%) increase and decrease in Sterling against
the major currencies listed in the table above. The sensitivity analysis includes only the outstanding denominated
monetary items and adjusts their translation at the end of the period for a 20% change in the Sterling exchange rate. A
positive number below indicates an increase in profit where Sterling weakens against the relevant currency. For a 20%
strengthening of Sterling against the relevant currency, there would be an equal and opposite impact on profit, and the
balances would be negative.
The sensitivities below are based on the exchange rates at the reporting date used to convert the assets or liabilities
to Sterling.
Profit and loss
impact
2022
£m
Euros
US Dollars
Profit and loss
impact
2021
£m
4.5
5.0
17.0
12.4
21.5
17.4
If the exchange rate on uncovered exposures were to move significantly between the year end and the date of payment
or receipt, there could be an impact on the Group’s profit. As all financial assets and liabilities are short-term in nature,
this risk is not considered to be material.
142
RWS — Annual Report 2022
NOTES TO THE CONSOLIDATED STATEMENTS
