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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
responsibility for the establishment and
oversight of the Group’s risk management
framework.
The Treasury Committee, a committee
reporting to the CEO, is responsible for
reviewing, monitoring and endorsing funding
and risk management strategies. Treasury
identifies, evaluates 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 and interest rate risk), credit risk
and liquidity risk. Note the Group’s current
activities do not expose it to price risk. The
Group’s overall financial risk management
program focuses on the unpredictability
of financial markets and seeks to minimise
potential adverse effects
on the financial performance 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
instruments are exclusively used for hedging
purposes, 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 responsible 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
effective hedge is recognised directly in equity.
When the cash flows occur, the Group adjusts
the initial measurement of the component
recognised in the consolidated income
statement by the related amount deferred
in equity.
During the year ended 30 June 2017 there
was a reclassification of cash flow hedge from
equity to the income statement of $0.016m
(2016: $0.047m) due to the maturing of the
hedges. There was hedge ineffectiveness
of $0.016m in the current year that was
expensed to the income statement. (2016:
$0.011m)
At 30 June the Group has an outstanding
effective cash flow hedge that is set to mature
in October 2017 at which time the foreign
exchange gain or loss from the effective
hedge will impact the Income Statement.
The Group also has one ineffective cash flow
hedge that will impact the Income Statement
during this period until maturity in July 2017.
Treasury will continue to assess and mitigate
the Group’s foreign exchange risk.
104
NOTE 11
FINANCIAL RISK MANAGEMENT