annual report - Harvey Norman Company Reports & Announcements

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. Financial Risk Management (continued)
(i) Foreign Currency Risk Management (continued)
The sensitivity increases and decreases in exchange rates have been selected as this is considered reasonable given
the current level of exchange rates and the volatility observed both on a 5-year historical data basis and market
expectations for potential future movement. The sensitivities of post tax profit in 2012 is comparable to 2011. The
movements in other comprehensive income in 2012 are more sensitive than in 2011 because of the increased use of
foreign currency contracts designated as cash flow hedges.
(ii) Interest Rate Risk Management
Interest rate risk refers to the risk that movements in variable interest rates will affect financial performance by
increasing interest expenses or reducing interest income.
Interest rate risk arises from financial assets and liabilities that are subject to floating interest rates. The consolidated
entity‟s exposure to market interest rates relates primarily to:
Cash and cash equivalents;
Non-trade debts receivable from related parties and other unrelated persons;
Bank overdraft;
Non-trade amounts owing to related parties and other unrelated persons;
Borrowings; and
Bills payable.
The consolidated entity manages the interest rate exposure by adjusting the ratio of fixed interest debt to variable
interest debt to management‟s desired level based on current market conditions. Where the actual interest rate
profile on the physical debt profile differs substantially from the desired target, the consolidated entity uses
derivatives, principally interest rate swaps, to adjust towards the target net debt profile. Under the interest rate swaps
the consolidated entity agrees with other parties to exchange, at specified intervals, the difference between fixed
contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.
Fixed interest rate
maturing in
30 June 2012 Principal
Subject to
Over More Non-
Floating 1 year 1 to 5 than interest
Average interest rate
interest rate or less years 5 years bearing Total
$000 $000 $000 $000 $000 $000 Floating Fixed
Financial assets
Cash
Consumer
finance
126,245 31,300 - - 14,914 172,459 0.20%-5.96% 0.045%-0.86%
Loans
Finance lease
-
96 44
- 4,041 4,181 - 9.00%-12.50%
receivables
- 9,907 8,879
- - 18,786 - 10.50%-12.50%
Trade debtors
Other financial
- - - - 985,926 985,926 - -
assets
Non-trade
-
-
-
- 33,751 33,751 -
-
debtors & loans 19,511 4,144 673
- 1,030 25,358 6.65%-9.46% 5.00%-12.50%
145,756 45,447 9,596 - 1,039,662 1,240,461
Financial liabilities
Bank overdraft 32,366 - - - - 32,366 2.22%-3.47% -
Borrowings (*)
Interest rate
swaps (notional
671,211 464 - - - 671,675 0.63%-6.65% 3.67%-5.47%
amount)
- (100,000) (350,000)
- - (450,000) - 4.97%-5.54%
Net exposure 671,211 (99,536) (350,000) - - 221,675 0.63%-6.65% 3.67%-5.54%
Trade creditors
Finance lease
- - - - 647,279 647,279 - -
liabilities
-
117 12
- - 129 - 3.24%-9.50%
Other loans
Bills payable (*)
44,578 107 - - 84 44,769 4.50%-6.46% 5.00%-12.00%
- Australia 9,750 - - - - 9,750 3.69%-4.96% -
- Slovenia
Other financial
675 - - - - 675 1.70%-3.57% -
liabilities
- 1,015 18,784
- 184 19,983 - 4.97%-5.54%
758,580 1,703 18,796 - 647,547 1,426,626
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