NOTES TO THE FINANCIAL STATEMENTS CONTINUED S S 23 FINANCIAL INSTRUMENTS CONTINUED TR23 FINANCIAL INSTRUMENTS CONTINUED TR Foreign currency exposure continued AHedge accounting continued A The following significant exchange rates applied: TEDerivative financial instruments TE G G I I C Derivative financial instruments are recorded at fair value. The hedging instruments of the cash flow hedge relationship have been designated as the spot C Average rate Average rate Closing rate Closing rate Relement of forward foreign exchange contract, and the forward points are excluded from the hedge relationship. The hedged items have been designated R 2023 2022 2023 2022 E E Euro 1.15 1.17 1.15 1.13 Pas highly probable forecast net sales or purchases denominated in foreign currencies. P O O R R Chinese renminbi 8.75 8.26 9.04 8.36 TWhere the value of the hedging instrument matches the value of the hedged item in a 1:1 hedge ratio, the hedge is effective, and changes in the fair value T US dollar 1.23 1.25 1.27 1.20 of the hedging instrument attributable to the spot risk are considered an effective hedge and recognised in the cash flow hedge reserve within Other Japanese yen 172.09 160.24 179.72 158.72 Comprehensive Income. Changes in fair value attributable to forward points are recognised in the cost of hedging reserve within Other Comprehensive G G O Income. Where the value of hedging instrument is greater than the value of the hedged item, the excess portion is recognised as the ineffective portion O VE of the gain or loss on the hedging instrument and is recorded immediately in the Consolidated Income Statement. VE Currency risk – sensitivity R R The following table demonstrates the sensitivity to a change in the US dollar, Euro, Chinese renminbi and Japanese yen exchange rates, with all other NANWhen the expected volume of hedged highly probable forecast transactions is lower than the designated volume, and a portion of the hedged item is NAN variables held constant, of the Group’s result after tax (due to changes in the fair value of monetary assets and liabilities) assuming that none of the US dollar no longer highly probable to occur, hedge accounting is discontinued for that portion. If the hedged future cash flows are still expected to occur, then or Euro exposures are used as hedging instruments. C C E the accumulated amount in cash flow hedge reserve relating to the discontinued portion remains in the cash flow hedge reserve until the future cash flows E Effect on result Effect on result occur. If the hedged future cash flows are no longer expected to occur, then that amount is immediately reclassified from the cash flow hedge reserve to the (Increase)/ after tax after tax Consolidated Income Statement as a reclassification adjustment. decrease 2023 2022 F F I I in rate £m £m NAN $400m Senior Secured Notes NAN US dollar (5%) (7.3) (7.8) The $400m SSNs were repaid in December 2020. Prior to repayment they were recorded at amortised cost and translated into sterling at the year-end or C C US dollar 5% 8.1 8.6 IALrepayment date closing rates with movements in the carrying value due to foreign exchange movements offset by movements in the value of the highly IAL Euro (5%) 8.5 12.5 S probable forecast sales when translated from US dollars to sterling. When the hedge ratio is 1:1, the value of the hedging instrument matches the value S T of the hedged item. In this case, the change in the carrying value of these SSNs, arising as a result of exchange differences, is recognised through Other T Euro 5% (9.4) (13.8) A A T T Chinese renminbi (5%) (0.3) (4.3) EComprehensive Income into the hedge reserve instead of within finance income/(expense). E M M E E Chinese renminbi 5% 0.4 4.8 NWhen the value of the hedging instrument is greater than the value of the hedged item, the excess portion is recognised as ineffective and is recorded N T T Japanese yen (5%) (3.4) (1.7) Simmediately to finance expense in the Consolidated Income Statement. S Japanese yen 5% 3.8 1.9 The amounts recorded within the hedge reserve, including the cost of hedging reserve, are reclassified to the Consolidated Income Statement when the F hedged item affects the Consolidated Income Statement. Due to the nature of the hedged items, all amounts reclassified to the Consolidated Income F U U $1,085.5m and $335m Senior Secured Notes RStatement are recorded in cost of sales (2022: all cost of sales), except for ineffective amounts relating to the $400m SSNs which would be recorded as R T T In December 2020, the Group took out First Lien and Second Lien SSNs at $1085.5m and $335m, respectively. The Group has not hedged the SSNs since Hfinance expense in the Consolidated Income Statement. H E E inception. Foreign currency gains/(losses) on these SSNs, due to exchange rate movements between the US dollar and sterling, are charged to the R R Consolidated Income Statement within finance income/(expense). A corresponding change in the translated sterling value of these SSNs is reflected in the INFMain sources of hedge ineffectiveness INF Other than previously described, in relation only to forward contracts designated as a hedge, the main sources of potential hedge ineffectiveness relate to Consolidated Statement of Financial Position. In March 2021, the Group issued additional First Lien SSNs of $98.5m. During the year ended 31 December ORpotential differences in the nominal value of hedged items and the hedging instrument should they occur. OR 2023, the Group paid down $121.7m of Second Lien SSNs (year ended 31 December 2022: $40.3m of First Lien SSNs and $143.8m of Second Lien SSNs). M M A A No hedging relationship has been established in 2022 or 2023. TThe impact of hedging instruments on the Statement of Financial Position is as follows: T I I $400m Senior Secured Notes ON 31 December 2023 31 December 2022 ON The Group had designated $400m of SSNs as a hedging instrument in respect of $400m of highly probable forecast US dollar sales that are not already Change in fair Change in fair hedged with forward contracts. These SSNs were repaid in December 2020 and hedge accounting was discontinued from the date of repayment. As the value used for value used for Notional Carrying measuring Notional Carrying measuring forecast transactions are still expected to occur, the amount accumulated in the cash flow hedge reserve at the repayment date has been fully released value value ineffectiveness value value ineffectiveness to the Consolidated Income Statement in line with the profile of the US dollar sales to which it related. £m £m £m £m £m £m Foreign exchange forward contracts – Hedge accounting other financial assets 94.1 3.3 3.3 96.1 2.3 2.3 The Group is primarily exposed to US dollar currency variations on the sale of vehicles and parts, and Euro currency variations on the purchase of raw Foreign exchange forward contracts – material parts and services. As part of its risk management policy, the Group uses derivative financial instruments in the form of currency forward contracts other financial liabilities 52.9 (2.1) (2.1) 33.1 (0.7) (0.7) to manage the cash flow risk resulting from these exchange rate movements. The Group had designated the foreign exchange movement on $400m of $400m Senior Secured Notes – hedge instrument 75.2 – – 105.6 – – repaid SSNs as part of a cash flow hedging relationship, to manage the exchange rate risk resulting from forecast US dollar intercompany sales. Together, these are referred to as cash flow hedges. The cash flow hedges give certainty over the transactional values to be recognised in the Consolidated Income The impact of hedged items on the Statement of Financial Position is as follows: Statement, and in the case of the forward contracts, certainty around the value of cash flows arising as foreign currencies are exchanged at predetermined rates. The Group hedges significant foreign currency exposures as follows: 31 December 2023 31 December 2022 Cash flow hedge Cost of hedging Cash flow hedge Cost of hedging reserve reserve reserve reserve – Firstly, when practical, with currency forward contracts on a reducing basis with the highest coverage in the year immediately following the year-end £m £m £m £m date. When practicable, the Group places additional hedges on a regular basis so that the percentage of the foreign currency exposure hedged increases Foreign exchange forward contracts 1.9 (0.8) 2.9 (0.9) as the time to maturity of the foreign currency exposure reduces. $400m Senior Secured Notes – hedge instrument – – 3.9 – – Secondly, the Group has designated $400m of repaid SSNs as a hedging instrument in respect of $400m of highly probable forecast US dollar sales that Tax on fair value movements recognised in OCI (0.5) 0.2 (1.8) 0.2 are not already hedged with forward contracts. These SSNs were repaid in December 2020. The Group currently has no active currency forward contract cash flow hedges beyond 2024. The Group does not mitigate all transactional foreign currency exposures, with the unhedged proportion converted at exchange rates prevailing on the date of the transaction. ASTON MARTIN LAGONDA ANNUAL REPORT AND ACCOUNTS 2023 181