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BUSINESS MODEL
AND STRATEGIC
OBJECTIVES
LEADERSHIP
GOVERNANCE
OPERATING
PERFORMANCE
SHAREHOLDERS’
INFORMATION AND
ADMINISTRATION
FINANCIAL
PERFORMANCE
BLUE LABEL INTEGRATED ANNUAL REPORT 2014
145
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 May 2014
3.
FINANCIAL RISKS (continued)
Cash flow and fair value interest rate risk
The Group’s cash flow interest rate risk arises from loans receivable, cash and cash equivalents and
borrowings carrying interest at variable rates. The Group is not exposed to fair value interest rate risk as the
Group does not have any fixed interest-bearing instruments carried at fair value.
The Group’s exposure to interest rate risk is reflected under the respective cash and cash equivalents and
borrowings notes (notes 12 and 16). As part of the process of managing the Group’s exposure to interest
rate risk, interest rate characteristics of new borrowings and the refinancing of existing borrowings are
positioned according to expected movements in interest rates.
Foreign currency risk
The Group is exposed to foreign currency risk from transactions and translation. Transaction exposure arises
because affiliated companies undertake transactions in currencies other than their functional currency.
The Group manages its exposure to foreign currency risk by ensuring that the net foreign currency exposure
remains within acceptable levels. Hedging instruments may be used in certain instances to reduce risks
arising from foreign currency fluctuations.
The Group did not enter into any forward exchange contracts during the period under review.
IFRS 7 – Sensitivity Analysis
The Group has used a sensitivity analysis technique that measures the estimated change to the statement of
comprehensive income of either an instantaneous increase or decrease of 1% (100 basis points) in market
interest rates or a 10% strengthening or weakening of the rand against all other currencies, from the rates
applicable at 31 May 2014, for each class of financial instrument with all other variables remaining constant.
This analysis is for illustrative purposes only, as in practice market rates rarely change in isolation.
Interest rate risk
The interest rate sensitivity analysis is based on the following assumptions:
•
•
Changes in market interest rates affect the interest income or expense of variable interest financial
instruments;
•
•
Changes in market interest rates only affect interest income or expense in relation to financial instruments
with fixed interest rates if these are recognised at fair value; and
•
•
Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2014 would
increase or decrease profit before tax by R13.6 million (2013: R10.8 million).