bold spirit - ArcelorMittal South Africa

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178 ArcelorMittal South Africa Annual Report 2010 26. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT continued 26.6 Commodity risk managed by embedded derivatives Embedded derivative instrument Expiry period Fair value Rm Recognised fair value gains/(loss) Rm Group and company For the year ended 31 December 2010 Energy – pricing cap 2011 to 2013 251 18 For the year ended 31 December 2009 Energy – pricing cap 2010 to 2013 233 (133) The embedded derivative represents a pricing cap on the purchase of natural gas. The natural-gas supplier invoked the four year claw-out mechanism, effective from 1 January 2010. The mechanism limits off-take volumes to actual levels in the year (the “reference year”) preceding the invocation, namely 2009. In the first year of the claw-out period (2010), volumes are limited to 100% of those of the reference year, reducing to 75% (2011), 50% (2012) and 25% (2013) respectively for the subsequent three years. 26.7 Interest rate risk management Sources of interest rate risk are: • interest expenses, as companies in the group enter arrangements to fund the construction of assets either in the form of bona fida borrowing arrangements or through supply arrangements containing financial lease structures at fixed interest rates; and • interest income, due to the group’s and company’s net cash position and the investment thereof at variable interest rates. The group’s and companies’ sensitivity to interest rates has decreased due to lower average ZAR cash holdings and interest rates compared with the comparative reporting period. 26.8 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the group’s and company’s short-, medium- and long-term funding and liquidity management requirements. The objectives of the liquidity management policy are as follows: • maintenance of adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecasted and actual cash flows and matching the maturity profiles of financial assets and liabilities; • optimise the account and domestic cash pool structures; • minimise bank charges (payments and collection fees, spreads etc); • optimise the availability and use of short-term liquidity positions across the group without compromising the day-to-day cash needs; • optimise the net interest result; and • minimise the number of bank accounts, to reduce risk of misuse and costs. Liquidity and interest risk tables (i) Contractual maturity for its non-derivative financial liabilities The following table details the group’s and companies’ remaining contractual maturity for non-derivative financial liabilities.
179 ArcelorMittal South Africa Annual Report 2010 26. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT continued 26.8 Liquidity risk management continued The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the group and company can be required to pay. The table includes both interest and principal cash flows. Annual effective interest rate 0 – 6 months Rm 7 – 12 months Rm 1 – 5 years Rm >5 years Rm Discount Rm Carrying amount Rm Group For the year ended 31 December 2010 Non-interest bearing • Trade and other payables 0.0% 4 020 4 020 Finance lease liability 12.5% 64 66 482 329 (367) 574 Borrowings and other payables 11.4% 14 23 (7) 30 Total 4 098 66 505 329 (374) 4 624 Group For the year ended 31 December 2009 Non-interest bearing • Trade and other payables 0.0% 3 496 3 496 Finance lease liability 12.4% 64 67 488 429 (434) 614 Borrowings and other payables 6.9% 34 16 38 (15) 73 Total 3 594 83 526 429 (449) 4 183 Company For the year ended 31 December 2010 Non-interest bearing • Trade and other payables 0.0% 3 494 3 494 Finance lease liability 11.2% 49 49 369 183 (216) 434 Total 3 543 49 369 183 (216) 3 928 Company For the year ended 31 December 2009 Non-interest bearing • Trade and other payables 0% 2 892 2 892 Finance lease liability 10.7% 48 50 376 254 (261) 467 Borrowings and other payables 6.3% 34 (2) 32 Total 2 974 50 376 254 (263) 3 391 (ii) Expected maturity for its non-derivative financial, assets The following table details the group’s and companies’ expected maturity for non-derivative financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets.
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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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bold spirit - ArcelorMittal South Africa

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