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notes to the financial Statements
for the year ended 31 March 2012
Financial risk management objectives
The Group manages financial risks relating to its operations by complying with the policies set by the Board.
New risks are referred to the Board for consideration as they become known. Risks include market risk
(including foreign currency exchange risk, fair value interest rate risk, cash flow and interest rate risk), credit risk
and liquidity risk.
The Group’s policy on the use of financial derivatives and non-derivative financial instruments is disclosed in
note 2. The Board receives quarterly reports on treasury strategy and compliance with the treasury policy.
These reports are from external treasury advisors.
a) Market risk
The Group’s activities expose it primarily to the financial risks of changes in interest rates, and to a lesser
extent also changes in foreign currency rates. The Group enters into a variety of derivative financial
instruments to manage its exposure to interest rate and foreign currency exchange risk, including:
forward foreign exchange contracts to hedge the foreign currency exchange rate risk arising on the
•
purchase of equipment and steel from overseas;
•
interest rate swaps, caps and collars to mitigate the risk of rising interest rates.
•
There has been no change during the year to the manner in which the Group manages and measures market
risk.
Foreign currency
It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency
payments.
The Group had no forward foreign exchange contracts as at 31 March 2012. (2011: $ Nil)
Interest rate risk management
The Group is exposed to interest rate risk as the Company borrows funds at floating interest rates to fund
the activities of the Group. The risk is managed through the use of interest rate swap contracts and forward
interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and the
treasury policy.
Exposure to interest rate risk has decreased as a result of the lower level of debt. The Company’s and
Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk
management section of this note.
Further information on derivative financial instruments, including interest rate swaps, and their accounting
treatment is provided in note 24.
Interest rate sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to interest rates for both
derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis
is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the
whole year. A 100 basis point increase or decrease is used to assess interest rate risk and this represents
management’s assessment of the reasonably possible change in interest rates.
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