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33.
FINANCIAL INSTRUMENTS
(continued)
33.4 Market risk
(continued)
33.4.1 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 forward exchange contracts have maturities of less than one year after the reporting date. Where necessary, the
forward exchange contracts 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 forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies (in
relation to the operations’ functional currency) 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 forward exchange contracts and the foreign exchange gains and losses relating to the monetary
items are recognised in operating profit (refer note 3).
The periods in which the cash flows associated with the forward exchange contracts are expected to occur are detailed below under the
heading “settlement”. The periods in which the cash flows are expected to impact the income statement are believed to be in the same
timeframe as when the actual cash flows occur.
Contract value
Settlement
Foreign
amount
’000
Rand
amount
’000
2017
In respect of forward exchange contracts relating to foreign liabilities as at
June 30 2017
US dollar
July to September 2017
(7 054)
(93 510)
Euro
July to September 2017
(3 786)
(60 118)
Australian dollar
July 2017
(384)
(3 719)
(157 347)
In respect of forward exchange contracts relating to foreign assets as at
June 30 2017
US dollar
January 2018
17 044 221 409
Euro
January 2018
705 10 069
231 478
FINANCIAL OVERVIEW
Notes to the consolidated financial statements
for the year ended June 30
FINANCIAL STAT MENTS
Annual integrated report 2017
Bid Corporation Limited
124