Annual Report 2012 - Dialog

74 l Dialog Axiata PLC l Annual Report 2012
Notes to the Financial Statements
3 Financial risk management contd.
3.1 Foreign exchange risk
The Company and the Group operate internationally and are exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the US Dollar. Foreign exchange risk arises when future commercial transactions or
recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.
As at 31 December 2012, if LKR has weakened by 1% against USD with all other variables held constant, this will result in
net foreign exchange losses of Rs 176 million in the Group, on translation of USD balances.
3.2 Cash flow and fair value interest rate risk
The Company and the Group has cash and bank balances including deposits placed with creditworthy licensed banks and
financial institutions. The Company and the Group manage its interest rate risk by actively monitoring the yield curve trend
and interest rate movement for the various cash and bank balances.
The Company’s and the Group’s borrowings comprise borrowings from financial and non-financial institutions and
Preference Shares. The Company’s and the Group’s interest rate risk objective is to manage an acceptable level of rate
fluctuation on the interest expense. In order to achieve this objective, the Company and the Group target a composition of
fixed and floating borrowings based on assessment of its existing exposure and desirable interest rate profile. The Company
and the Group analyses its interest rate exposure on a dynamic basis.
3.3 Credit risk
Credit risk is managed on Company and the Group basis. Credit risk arises from cash and cash equivalents, derivative
financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including
outstanding receivables (net of deposits held). Individual risk limits are set, based on internal or external ratings. The utilisation
of credit limits is regularly monitored.
The Company and the Group place its cash and cash equivalents with a number of creditworthy financial institutions.
The Company’s and the Group’s policy limits the concentration of financial exposure to any single financial institution.
The maximum credit risk exposure of the financial assets of the Company and the Group are approximately their carrying
amounts as at statement of financial position date.
3.4 Liquidity risk
Prudent liquidity risk management implies maintaining sufficient liquid funds to meet its financial obligations.
In the management of liquidity risk, the Company and the Group monitor and maintain a level of cash and cash equivalents
deemed adequate by the management to finance the Company’s and the Group’s operations and to mitigate the effects
of fluctuations in cash flows. Due to the dynamic nature of the underlying business, the Company and the Group aim at
maintaining flexibility in funding by keeping both committed and uncommitted credit lines available.
The table below analyses the Group’s and the Company’s non-derivative financial liabilities into relevant maturity groupings
based on the remaining period at the statement of financial position date to the contractual maturity date.