Annual Reports & Accounts 2011

32 Derivative financial instruments

			2011				2010
	Credit rating		Notional contract amount USD’000	Assets USD’000	Liabilities USD’000		Notional contract amount USD’000	Assets USD’000	Liabilities USD’000
Derivatives designated as hedging instruments in cash flow hedges
– Forward foreign exchange contracts	A+		8,457	427	–		36,310	2,517	–
– Forward foreign exchange contracts	AA, A+		23,018	–	1,449		85,301	–	2,651
Derivatives held at fair value through profit or loss			2,862	272	–		–	–	–
Total			34,337	699	1,449		121,611	2,517	2,651

During 2010, the Group entered into three forward contracts to hedge its foreign currency exposure with respect to certain supplier commitments in Euros. The notional principal amount at the date of inception of these contracts was Euro 142m. These contracts mature in 2012.

The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next six months. Gains and losses recognised in the hedging reserve in the consolidated statement of changes in equity on forward foreign exchange contracts as of 31 December 2011 are recognised in the consolidated income statement in the period or periods during which the hedged forecast transaction affects the consolidated income statement.

During 2011, the Group entered into three forward contracts to hedge its foreign currency exposure on expected NOK payments with respect to the acquisition of MIS. The notional principal amount at the date of inception of these contracts was NOK 1,864m. These contracts matured 1 September 2011.

A profit of USD 13,083,000 (2010: loss of USD 304,000) was recorded in equity and a profit of USD 3,963,000 (2010: loss of USD 170,000) was recycled from equity to consolidated income statement. A profit of USD 10,166,000 (2010: USD Nil), representing the gain in relation to the three forward contracts to hedge its foreign currency exposure with respect to NOK payments made to the shareholders of MIS was recorded as a basis adjustment to the purchase consideration (Note 35). The net movement in the fair value reserve during the year was a loss of USD 1,046,000 (2010: loss of USD 134,000).

During 2011, prior to being acquired by the Group (Note 35), MIS entered into a forward contract to sell Euros for AED. This derivative did not qualify for hedge accounting and is carried at fair value through profit or loss. The fair value at the 31 December 2011 was USD 272,000.

This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties, using the same techniques as for other counterparties.

The derivative financial instruments are gross settled and the maturity profile based on the year end rates of the expected undiscounted amounts payable and receivable at 31 December 2011 is as follows:

	2011 USD’000	2010 USD’000
Receivable
Within one year	34,337	89,061
After one year but not more than two years	–	32,550
	34,337	121,611

Payable
Within one year	35,154	88,683
After one year but not more than two years	–	32,562
	35,154	121,245