ASX ANNOUNCEMENT Bega Cheese Limited ... - Open Briefing

Financial Statements
Year Ended 30 June 2011
Notes to the Financial Statements (cont.)
a. Market Risk (cont.)
Group Sensitivity
This is based on the financial instruments held on 30 June 2011, had the Australian dollar weakened or strengthened by
10% against the US dollar, the Euro and Japanese Yen, with all other variables held constant. The analysis is
performed on the same basis for 2010. The Group sensitivity is detailed in the following table.
Cash Flow and Fair Value Interest Rate Risk
The Group’s main interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Group policy is to maintain between 30 and 60 percent of its borrowings at a fixed
rate using interest rate swaps. All borrowings were denominated in Australian dollars during 2011 and 2010.
As at the reporting date, the Group had the following interest bearing borrowings, interest rate swaps and assets
outstanding:
An analysis by maturities is provided in (c) below.
2011 2010
$'000 $'000
Equity
AUD$ strengthens 10% - increase / (decrease) (3,234) (5,037)
AUD$ weakens 10% - increase / (decrease) 3,952 6,156
Liabilities
Consolidated
Consolidated
2011 2010
$'000 $'000
Fixed Rate Instruments
Bank overdrafts and loans 726 14,254
Variable Rate Instruments
Bank overdrafts and loans 114,841 116,314
Interest rate swaps (notional principal amount) (36,200) (53,300)
Net Exposure on liabilities to interest risk 79,367 77,268
Assets
Fixed Rate Instruments 1,992 2,565
Variable Rate Instruments 20,587 18,169
The Group analyses its interest rate exposure using various scenarios to simulate factors such as refinancing, renewal of
existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on
profit and loss of a defined interest rate shift.
Based on the various scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate
swaps. Such interest rate swaps, have the economic effect of converting borrowings from floating rates that are lower
than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with
other parties to exchange, at specified intervals (mainly quarterly), the differences between fixed contract rates and
floating-rate interest amounts calculated by reference to the agreed notional principal amounts.
Group Sensitivity
At 30 June 2011, if interest rates had changed by -/+ 100 basis points from the year end rates with all other variables
held constant, post tax profit for the year would have been $550,000 (2010: $467,000) higher or lower for the Group’s
net profit.
Bega Cheese Limited 2011 Annual Report 42