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23 Financial risk management
23.1 Financial risk factors
Exposure to credit, liquidity and market (currency, interest and price) risks arise in the normal course of the Group’s
business. The Company and Group have various fnancial instruments with off‑balance sheet risk.
Senior management are required to identify and report major risks affecting the business and develop strategies to
mitigate these risks. The board reviews and approves overall risk management strategies covering specifc areas.
(a) Credit risk
Credit risk is the risk that a third party will default on its obligations to the Parent or Group, causing the Parent or Group
to incur a loss. The Parent and Group do not have any signifcant concentrations of credit risk. The maximum exposure to
credit risk at reporting date is the carrying amount of the fnancial assets as shown in the statement of fnancial position.
The Group does not require any collateral or security to support fnancial instruments as it only deposits with, or lends to,
banks and other fnancial institutions with high credit ratings except for funds lent to a related party and an external entity
for which the Group has appropriate security and guarantees. The Group further minimises credit exposure by limiting
the amount of surplus funds placed with any one fnancial institution. The Group does not expect non‑performance of
any obligations at balance date. There are no material fnancial assets held by the Company and Group at balance date
which are past due but not impaired.
(b) Market risk
(i) Currency
The Group has no exposure to currency risk at balance date.
There are no notional principal or forward foreign exchange contracts at 31 March 2012 (2011: nil).
(ii) Interest rate risk
The Group’s interest rate risk arises from long‑term borrowings. Borrowings issued at variable rates expose the Group to
cash fow interest rate risk. Borrowings issued at fxed rate expose the Group to fair value interest rate risk.
The Company and Group adopt a policy of ensuring that between 25 and 90 per cent of its exposure to changes in
interest rates on borrowings is on a fxed rate basis.
The Group manages its cash fow interest rate risk by using foating to fxed interest rate swaps. Such interest rate swaps
have the economic effect of converting borrowings from foating rates to fxed rates.
Under interest rate swap contracts, the Group agrees to exchange the difference between fxed contract and foating rate
interest amounts calculated by reference to the agreed notional principal amounts. Such contracts enable the Group to
mitigate the risk of changing interest rates on the fair value of issued fxed rate debt held and the cash fow exposures
on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by
discounting the future cash fows at reporting date and the credit risk inherent in the contract, and are disclosed below.
The average interest rate is based on the outstanding balances at the start of the fnancial year.
(iii) Price risk
The Group and the Parent entity are exposed to equity securities price risk. This arises from investments held by the
Group and Parent that are classifed at fair value through proft or loss. Neither the Group nor the Parent entity are
exposed to commodity price risk.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter diffculty raising liquid funds to meet commitments as they fall due.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by
continuously monitoring forecast and actual cash fows and matching the maturity profles of fnancial assets and liabilities.
notes to the financial Statements continued