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| Bidcorp Limited Annual integrated report 2016
32.
FINANCIAL INSTRUMENTS
(continued)
32.4 Market risk
(continued)
32.4.1 Foreign currency risk
The group’s financial instruments are not significantly exposed to currency risk for the reasons provided below. A sensitivity analysis has
therefore not been performed.
Borrowings are matched to the same foreign currency as the division raising the loan thereby limiting the divisions’ exposure to changes in
a foreign currency which differs to their functional currency. Interest on borrowings is denominated in currencies that match the cash flows
generated by the underlying divisions of the group thereby providing an economic hedge for each class of borrowing.
The group incurs currency risk as a result of purchases and sales which are denominated in a currency other than the group entities’
functional reporting currency. It is group policy that group entities hedge all trade receivables and trade payables denominated in a foreign
currency which differs to its functional currency. At any point in time the entities also take out economic hedges over their estimated foreign
currency exposure resulting from sales and purchases. The group entities hedge their foreign currency risk exposure either by taking out
forward exchange contracts (FECs) or alternatively by purchasing in advance the foreign currency which will be required to settle the trade
payables. Most of the FECs have maturities of less than one year after the reporting date. Where necessary, the FECs are rolled over at
maturity. It is the group’s policy not to trade in derivative financial instruments for speculative purposes.
Changes in the fair value of FECs that economically hedge monetary assets and liabilities in foreign currencies (in relation to the operations’
functional currencies) and for which no hedge accounting is applied are recognised in the statement of profit or loss. Both the changes in fair
value of the FECs and the foreign exchange gains and losses relating to the monetary items are recognised in operating profit (refer to note 3).
The periods in which the cash flows associated with the FECs are expected to occur are detailed below under the heading “settlement”. The
periods in which the cash flows are expected to impact the statement of profit or loss are believed to be in the same timeframe as when the
actual cash flows occur.
Contract value
Settlement
Foreign
amount
’000
Rand
amount
’000
2016
In respect of FECs relating to foreign liabilities as at June 30 2016
US dollar
July to August 2016
(3 513)
(53 332)
Euro
July to September 2016
(8 110) (135 592)
Australian dollar
July 2016
(20)
(225)
Other
July 2016
(10)
(189 159)
In respect of FECs relating to foreign assets as at June 30 2016
US dollar
July to November 2016
6 719
97 127
Norwegian krone
July to October 2016
14 569
26 530
Euro
July to November 2016
1 270
20 613
144 270
In respect of FECs relating to goods and services ordered not accounted for as at
June 30 2016
US dollar
July to May 2017
(12 540) (180 485)
Australian dollar
July to August 2016
(576)
(6 519)
Euro
July to October 2016
(1 200)
(19 173)
(206 177)
Notes to the consolidated financial statements
for the year ended June 30