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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
233
NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 May 2014
2.
FINANCIAL RISKS (continued)
Cash flow and fair value interest rate risk
The Company’s cash flow interest rate risk arises from loans receivable and cash and cash equivalents. The
Company is not exposed to fair value interest rate risk as the Company does not have any fixed interest-
bearing instruments carried at fair value nor any interest-bearing borrowings.
As part of the process of managing the Company’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 Company is exposed to foreign currency risk from transactions. Transaction exposure arises due to the
Company granting loans to affiliated companies in foreign currencies.
The Company manages its exposure to foreign currency risk by ensuring that the net foreign currency
exposure remains within acceptable levels. Hedging instruments are used in certain instances to reduce risks
arising from foreign currency fluctuations. The Company did not enter into any forward exchange contracts
during the period under review.
IFRS 7 – Sensitivity Analysis
The Company 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 risks
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; and
•
•
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.
Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2014 would
increase or decrease profit before tax by R655 070 (2013: R11 092).