RegulationAccounting StandardsRolls-Royce hedges against IFRS

Rolls-Royce hedges against IFRS

The engineering giant rejects IFRS to sidestep hedging volatility

Aerospace and defence powerhouse Rolls-Royce has decided against
overhauling its hedging policy to accommodate the requirements of IFRS. The new
treatments will cause huge volatility to the FTSE100 group’s numbers.

Announcing a surge in revenues in 2005 from £5.9bn to £6.6bn, the engine
maker said it would not alter ‘its hedging activities to achieve a particular
accounting presentation under IFRS’, even though its numbers had suffered
additional volatility as a result of IAS32 and IAS39.

A spokesman for the group said Rolls-Royce had run a successful hedging book
for decades and would not be changing this strategy to accommodate the IFRS
requirements.

‘We have net dollar exposure, so we enter long-term, forward-selling
contracts in order to lock in predictable exchange rates. We hedge using a
portfolio, which we have done for 20 years, and we will not change that,’ the
spokesman said.

In an effort to strip out the volatility caused under IFRS, Rolls-Royce
provided an underlying profit figure in its accounts that stripped out the
impacts of unrealised gains and losses.

Andrew Gollan, aerospace and defence analyst at Numis, added: ‘Including the
unrealised gains and losses would leave the company at the whim of the forex
markets when the whole aim is risk reduction,’ he said.

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