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GROUP – NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER
29. FINANCIAL INSTRUMENTS continued
Sensitivity analysis
A movement in exchange rates of 5%, with all other variables held constant, against the US dollar would have increased/(decreased) profit or
loss and equity by the amounts shown below.
The impact on equity includes the after-tax impact of the movements in profit or loss. The analysis has been performed on the basis of the
change occurring at the start of the reporting period and is performed on the same basis for 2010.
This analysis considers the impact of changes in foreign exchange rates on profit or loss and equity, excluding foreign exchange translation
differences resulting from the translation of group entities that have a functional currency different from the presentation currency, into the
group’s presentation currency (and recognised in the foreign currency translation reserve).
Impact on profit or loss Impact on equity
Rand million
Increase Decrease Increase Decrease
2011
US dollar 91 (91) 66 (66)
2010
US dollar 58 (58) 42 (42)
Interest rate risk
Interest rate risk arises from the group’s floating rate borrowings and the floating rate cash balances which exist. The company is not exposed to fair
value interest rate risk as the company does not have any fixed interest bearing financial instruments carried at fair value. As part of the process of
managing the company’s interest rate risk, interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned
according to expected movements in interest rates. For further details on long-term borrowings refer to note 9 ‘Interest-bearing borrowings’.
Sensitivity analysis
Changes in market interest rates affect the interest income or expense of floating rate financial instruments. A change in the market interest rate
of 50 basis points, with all other variables held constant, would have increased/(decreased) profit or loss and equity by the amounts shown below.
The impact on equity includes the after-tax impact of the movements in profit or loss. The analysis has been performed on the basis of the
change occurring at the start of the reporting period and is performed on the same basis for 2010.
Impact on profit or loss Impact on equity
Rand million
Increase Decrease Increase Decrease
2011
Floating interest rate instruments (8) 8 (6) 6
2010
Floating interest rate instruments (8) 8 (6) 6
Price risk
The group is not exposed to commodity price risk, as the value of its financial assets or liabilities are not subject to commodity price movements.
The group is exposed to equity securities price risk from equity investments held by the environmental trust. Refer to note 4 ‘Investments held by
environmental trust’.
Fair value
The fair values of cash and cash equivalents, trade and other receivables and trade and other payables approximate the respective carrying
amounts of these financial assets and financial liabilities because of the short period to maturity of these instruments. The fair value of interestbearing
borrowings is disclosed in note 9.
Level 1 1 Level 2 2 Level 3 3
Fair value measurements recognised in the consolidated balance sheet
2011
Investments held by the environmental trust (refer to note 4) 283 – –
Derivative financial assets 90 – –
Derivative financial liabilities (14) – –
359 – –
2010
Investments held by the environmental trust (refer to note 4) – 71 –
Derivative financial assets 78 – –
Derivative financial liabilities (30) – –
48 71 –
1 Level 1 fair value measurements are derived from unadjusted quoted prices in active markets for identical assets or liabilities.
2 Level 2 fair value measurements are derived from inputs other than quoted prices included within level 1 that are observable either directly or indirectly (i.e. derived from prices).
3 Level 3 fair value measurements are derived from valuation techniques that include inputs that are not based on observable market data.
There were no transfers between level 1 and level 2 during the year. This was also the case in 2010.
62 Kumba Iron Ore Limited