DRAVA, KUPA, RJE»INA, LOKVARKA, LI»ANKA LIKA, DOBRA ...

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS OF THE HEP GROUP (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2010
37. FINANCIAL INSTRUMENTS (continued)
FOREIGN CURRENCY SENSITIVITY ANALYSIS
The Group is mainly exposed to the changes of euro (EUR) and US dollar (USD). The following table details the Group’s
sensitivity to a 10% increase and decrease in the HRK against EUR and USD. 10% is the sensitivity rate used when
reporting foreign currency risk internally to key management personnel and represents Management’s assessment of
the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign
currency denominated receivables and liabilities and adjusts their translation at the period end for a 10% change
in foreign currency rates. The sensitivity analysis includes external loans where the denomination of the loan is in
a currency other than the currency of the lender or the borrower. A positive / negative number below indicates an
increase in profit and other equity where HRK strengthens 10% against the relevant currency. For a 10% weakening
of the HRK against the relevant currency, there would be an equal effect, but the balance would be negative.
2010 2009
HRK’000 HRK’000
EUR change impact
Profit or loss
USD change impact
350,872 470,385
Profit or loss 38,853 44,809
INTEREST RATE RISK MANAGEMENT
The Group is exposed to interest rate risk as it borrows funds at floating interest rates.
The Group’s exposures to interest rates on financial assets and financial liabilities are shown in section of this
note, the liquidity risk management. The Group manages this risk by maintaining an appropriate mix between fixed
and floating rate borrowings, by the use of interest rate swap contracts.
INTEREST RATE SENSITIVITY ANALYSIS
The sensitivity analysis has been determined based on the interest rate exposure of the Group to financial instruments
at the date of the statement of financial position.. For floating rates, the analysis is prepared assuming the amount of
liability outstanding at the reporting date was outstanding for the whole year. A 50 basis point increase or decrease
is used when reporting interest rate risk internally to key management personnel and represents Management’s
assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the
Group’s:
Profit for the year ended 31 December 2010 would decrease/increase by HRK 21,153 thousand (2009: HRK
-
22,031 thousand), based on exposure to interest rate risk. This is mainly attributable to the Group’s exposure
to interest rates on its variable rate borrowings, which accounted for 77% in 2010 (2009: 73%); and
The Group’s sensitivity to interest rates has decreased during the current period mainly due to the reduction
-
in variable rate of debt instruments.
123
HEP ANNUAL REPORT 2010
CHAPTER 6 - FINANCIAL STATEMENTS