Investor Presentaiton
CONSISTENCY IN OUR STRATEGY
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NOTE 4 DERIVATE FINANCIAL INSTRUMENTS:
The Company's activities expose it to a number of different financial risks: market risk (including
exchange-rate risks, cash flow and fair value, interest rate risks and price risks), credit risk and liquidity
risk. The risk management general program considers the unpredictability of the financial markets and
seeks to minimize the potential negative effects on the group's financial performance. The group uses
derivative financial instruments to hedge against risk exposure.
Financial risk management is handled by the finance department, as per the policies approved by the
Board of Directors. The entity identifies, assesses and hedges the financial risks in close co-operation
with its subsidiaries. The Board has approved written general policies in connection with the financial
risk management, as well as policies for specific risks, such as exchange rate, interest rate and credit
for the use of trading and/or hedging derivative financial instruments and of non-derivative financial
instruments for the investment of treasury surplus.
Following is the open position at December 31, 2009 and 2008 pertaining to hedging financial
instruments, as well as the effects of the transactions with financial instruments conducted in the periods
ended December 31, 2009 and 2008:
Comprehensive income
2009
2008
The total amounts of hedge agreements for the purchase of soy oil in effect at December 31, 2009 and
2008 are as follows:
At December 31, 2009
Notional
amount
(Dls.)
Dls.12,403
Notional
amount
pesos
Dates
Fair
value
Ps161,814
Starting Maturity
Various Various
Position
Long
(Dls.)
Dls. 1,781
Ps 23,274
At December 31, 2008
Pesos
Notional
amount
(Dls.)
Dls.10,368
Notional
amount
pesos
Ps142,820
Dates
Fair
value
Starting
Various
Maturity
Various
Position
Long
(Dls.)
Pesos
(Dls. 3,582)
(Ps 49,367)
For the period ended December 31, 2009, the Company recorded a Ps48,616 benefit in the cost of sales,
stemming from financial instruments contracted in 2008, realized during 2009. Due to the fact that these
financial instruments were intended to hedge the price of soy oil. Company management considered
that recording this amount in the cost of sales reflects the hedge effect more clearly. As required in
Interpretation to NIF 6 "Timeliness in formal designation of hedging", the Company documented the
efficiency of derivative financial instruments at a date subsequent to contracting thereof, as a result of
which those instruments were recorded as for hedging purposes.
Exchange-rate derivative financial instruments
In the purchase of its raw materials, the Company is exposed to fluctuations in the exchange rate of the
Mexican peso to the US dollar, due to which the Board of Directors has approved a hedging strategy with
forwards, with a view to minimizing the exchange risk for those transactions.
Open exchange rate hedge agreements
Ps
Open hedge agreements for the purchase of soy oil
Deferred IT pertaining to derivative financial instruments
intended for hedging
(121)
(4,733)
1,432
Trial balance accounts
Assets arising from futures for the purchase of soy oil
Assets arising from exchange rate hedge agreements
Investments in derivative financial instruments
Liabilities arising from exchange rate hedge agreements
Liabilities arising from futures for the purchase of soy oil
23,274
210,721
21,716
Ps
85,831
210,600
49,367
At December 31, 2009, the characteristics of the forwards designated as hedging are as follows:
Cost of sales
Change in fair value of futures for the purchase of soy oil
(48,616)
(7,012)
Comprehensive financing income
Open futures for the purchase of soy oil (not for hedging purposes)
(18,541)
Counterparty
Totals
Notional
Notional
amount
amount
(Dls.)
(Ps.)
Dls.16,000 Ps210,600
Beginning
date
Various
Expiration
date
Various
Type of
underlying asset
US dollar
Fair
value
Ps
121
As part of the strategy for soy oil price hedging (the main raw material), during 2009 and 2008, McCormick,
a subsidiary, used derivative financial instruments to reduce the risk of price fluctuations. At December
31, 2009 and 2008, the related balances included in "Other current assets" are as follows:
Investments in financial instruments
Fair value of derivative financial instruments
Net value of financial instruments
2009
2008
Ps
21,716 Ps
23,274
85,831
(49,367)
Ps 44,990 Ps 36,464View entire presentation