NOTE 10
FINANCIAL RISK MANAGEMENT
The Group’s principal financial instruments
comprise receivables, payables, bonds,
banking facilities, cash, short term deposits
and derivatives. The carrying amount equates
to the fair value of the financial instruments.
Risk management framework
The Group’s Board of Directors has overall re-
sponsibility for the establishment and oversight
of the Group’s risk management framework.
The Treasury Committee, a committee report-
ing to the CEO, is responsible for reviewing,
monitoring and endorsing funding and risk man-
agement strategies. Treasury identifies, eval-
uates and monitors compliance and manages
financial risks in accordance with the Treasury
Policy and Strategy. Treasury provides updates
to the Audit and Compliance Committee which
oversees adequacy, quality and effectiveness of
governance and financial risk management.
The Group’s activities expose it to a variety of
financial risks: market risk (including currency
risk, interest rate risk and price risk), credit risk
and liquidity risk. The Group’s overall financial risk
management program focuses on the unpredict-
ability of financial markets and seeks to minimise
potential adverse effects on the financial perfor-
mance of the Group. The Group uses derivative
financial instruments such as foreign exchange
contracts and interest rate swaps to hedge cash
flow risk exposures. Derivative financial instru-
ments are exclusively used for hedging purpos-
es, that is, not as trading or other speculative
instruments. The Group uses different methods
to identify and measure various different types
of risk to which it is exposed.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises from future
commercial transactions such as purchases
of equipment and supplies from overseas. All
significant non Australian dollar denominated
payments require Treasury to assess and
mitigate the Group’s foreign exchange risk.
Forward contracts are generally used to
manage foreign exchange risk. Treasury is re-
sponsible for managing the Group’s exposures
in each foreign currency by using external
foreign currency instruments in accordance
with Board approved Treasury Policy.
The portion of the gain or loss on the hedging
instrument that is determined to be an ef-
fective hedge is recognised directly in equity.
When the cash flows occur, the Group adjusts
the initial measurement of the component rec-
ognised in the consolidated income statement
by the related amount deferred in equity.
During the year ended 30 June 2015 there
was a reclassification of cash flow hedge from
equity to the income statement of $0.022m
(2014: $(0.070m)). There was no hedge
ineffectiveness in the current or prior year.
(ii) Cash flow and interest rate risk
The Group’s main interest rate risk arises from
borrowings. Bonds issued at variable rates
expose the Group to cash flow interest rate
risk. The Group’s policy is to maintain borrow-
ings within the fixed floating rate control limits
as specified for defined time periods. Interest
rate instruments are used to achieve this
when necessary. During the financial year, the
Group’s borrowings at fixed and variable rates
were denominated in Australian dollars.
The Group’s policy is to invest its available cash
reserves with due regard to the timing and mag-
nitude of operational cash flow requirements.
The Group manages its cash flow interest rate
risk by entering into and designating interest rate
related authorised hedging instruments as hedg-
es. As at the reporting date, cash reserves are
being held as cash and short term investments.
The gain or loss from re-measuring the hedging
instruments at fair value is recognised in other
comprehensive income and deferred in equity
in the hedging reserve, to the extent that the
hedge is effective. It is reclassified into the
income statement when the hedged interest
expense is recognised. In the year ended 30
June 2015 there was no reclassification into
profit or loss (2014: nil). Hedge effectiveness
was assessed at the inception of the bonds and
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