GCS ANNUAL REPORT 2014

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 32. FINANCIAL RISK MANAGEMENT (continued)
The Board of Directors review the written principles for overall risk management, including the following specific areas:
a. Market risk
The Group’s activities expose it primarily to the financial risk of changes in foreign currency exchange rates and interest rates. There has been no material change to the Group’s exposure to market
risk and how it manages those risks from 2013.
i. Foreign exchange risk
The Group undertakes certain transactions denominated in foreign currencies and is exposed to foreign exchange risk through foreign exchange rate fluctuations. Foreign exchange risk arises from
future commercial transactions and recognised financial asset and financial liabilities denominated in a currency that is not the entity’s functional currency. A formal risk management policy has been
implemented in order to manage this risk.
The Group deems an individual foreign currency exposure greater than AUD $250,000 of which the quantum and timing is know with certainty, to be a material exposure and required to be assessed
for full or partial hedging. Individual transactions up to AUD $500,000 can be authorised by the Chief Financial Officer, individual foreign currency exposures in the range of AUD $500,000 and up to
AUD $1,000,000 and transactions which aggregate up to AUD $5,000,000 are to be referred to the Executive members of the Audit and Risk Management Committee, Individual foreign currency
exposures above AUD $1,000,000 and in aggregate above AUD $5,000,000 are to be referred to the full Board of Directors for assessment. No sensitivity analysis has been undertaken as exposure
to foreign currency risk is immaterial to the statement of profit or loss and other comprehensive income.
ii. Cash flow and interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations that have floating interest rates. The Group’s policy is to manage its
interest cost using an appropriate mix between fixed and floating rate borrowings.
As at 30 June 2014, approximately 65% of the Group’s total borrowings are at a fixed rate of interest (2013: 74%) and 100% of the bank bills are at a floating rate (2013: 100%). The Group
monitors forecasts and actual cash flows and the maturity profiles of financial assets and liabilities to manage its liquidity risk.
As at the reporting date, the financial instruments exposed to interest rate risk are as follows:
Weighted
average
interest rate
%
2014 2013
Balance
$’000
Weighted
average
interest rate
%
Financial assets
Cash and cash equivalents 2.40 13,808 3.17 15,317
Financial liabilities
Borrowings 5.27 (27,340) 5.03 (24,840)
Net exposure to cash flow interest rate risk (13,532) (9,523)
Balance
$’000
The following sets out the Group’s exposure to interest rate risk, including the effective weighted average interest rate by maturity periods.
106 GLOBAL CONSTRUCTION SERVICES LIMITED ANNUAL REPORT 2014