bold spirit - ArcelorMittal South Africa

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176 ArcelorMittal South Africa Annual Report 2010 26. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT continued 26.3 Financial risk management overview and objectives The group’s and companies financial risk management programme focus on the unpredictability of financial markets and seeks to minimise potential adverse effects on financial performance. Financial risks to which the group and company are exposed consist of: • Financial market risk, consisting of: – foreign currency risk; – commodity price risks; – interest rate risk; and – liquidity risk, being • cash flow volatility, and • fair value and cash flow interest rate risk. • Capital management and gearing risk. • Customer credit risk as detailed in note 18. Treasury and financial risk management policy details the framework within which financial risk (other than customer credit risk) of the group and company are managed. The policy is approved by the Board of Directors and is reviewed annually. The Treasury Policy addresses market, liquidity, capital management and gearing risk through the direction of the following activities: • Financing facilities. • Financial guarantees and letters of credit. • Market risk management through: – foreign currency risk management; – commodity risk management; – interest rate management; and • Cash management through liquidity management. The Treasury Policy is enacted by the Treasury department (Treasury). Treasury identifies, evaluates and mitigates financial risks in close co-operation with the group’s and company’s operating units. Boardapproved written policies cover the specific activities noted above and address risk limits, the use of derivative and non-derivative financial instruments to hedge certain exposures, and the approval framework governing transaction levels. 26.4 Financial market risk The group’s and company’s activities expose the reporting entities primarily to the financial risks of changes in commodity prices, foreign currency exchange rates, interest rates and potential liquidity constraints. The group and company have not undertaken any economic hedging of commodity or foreign exchange rates since mid-2008. Markets continue to be monitored in order to determine the most opportune time to commence hedging. Movement in the cash flow hedging reserve for the reporting and the comparative period is visible in the statement of changes in equity. The movement for 2010 was limited to the release of a deferred loss for the group and company relating to base metal forward contracts. The hedging reserve for the group and company at 31 December 2010 is Rnil (December 2009: R6 million deferred loss).
177 ArcelorMittal South Africa Annual Report 2010 26. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT continued 26.5 Foreign currency risk management The carrying amount in ZAR, as translated at the closing exchange rate, of the foreign currency denominated monetary assets and monetary liabilities at the reporting date is: Group 2010 Rm 2009 Rm 2010 Rm Company 2009 Rm Monetary assets (i) USD Loans and receivables • Cash and cash equivalents 2 277 2 406 1 937 2 295 • Trade and other receivables – Related parties 341 280 177 126 Total foreign denominated monetary assets 2 618 2 686 2 114 2 421 Monetary liabilities (i) USD Carried at amortised cost • Trade and other payables – Related parties (203) (444) (137) (410) – Unrelated parties (58) (37) (57) (37) (ii) EUR Carried at amortised cost • Trade and other payables – Related parties (263) (214) (262) (214) – Unrelated parties (55) (26) (32) (24) Total foreign denominated monetary liabilities (579) (721) (488) (685) Total net foreign denominated monetary assets 2 039 1 965 1 625 1 736 Only notable currency holdings are disclosed. Foreign currency sensitivity The following table details the group’s and companies’ sensitivity to a 10% strengthening in the ZAR against the respective foreign currencies. As the risks are symmetrical in nature, weakening of the ZAR would result in an equal but opposite amount to that detailed in the sensitivity below. A (negative)/positive number indicates a (decrease)/increase in profit or loss where the ZAR strengthens against the relevant currency. Group Company 2010 Rm 2009 Rm 2010 Rm 2009 Rm USD Profit or loss (236) (220) (192) (197) EUR Profit or loss 32 24 29 24 Total Profit or loss (204) (196) (163) (173)
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Annual Report 2010 bold spirit
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I in brief
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Brand values Our goal is to provide
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Financial features Headline earning
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bold spirit - ArcelorMittal South Africa

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