Page 131 - SAR141018_Forterra AR 2013

FORTERRA
ANNUAL REPORT 2013
NOTES TO THE
FINANCIAL STATEMENTS
129
29 FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Market risk (Continued)
Sensitivity analysis
A strengthening of the respective functional currencies of the Group’s operations, as
indicated below, against the US Dollar at 31 December, would have increased/(decreased)
profit or loss (before any tax effects) by the amounts shown below. This analysis is based
on foreign currency exchange rate variances that the Group considered to be reasonably
possible at the end of the reporting period. The analysis assumes that all other variables,
in particular interest rates, remain constant and ignores any impact of forecasted sales
and purchases. The analysis is performed on the same basis for 2012, as indicated below:
Profit or loss
$’000
Group
As at 31 December 2013
US Dollar 39,046
As at 31 December 2012
US Dollar 58,437
A weakening of the foreign exchange rates at 31 December would have had an equal but
opposite effect on the currencies to the amounts shown above, on the basis that all other
variables remain constant.
(d) Interest rate risk
The Group’s exposure to changes in interest rates relates primarily to interest-bearing
borrowings at floating rates. Interest rate risk is managed by the Group on an on-going
basis with the primary objective of limiting the extent to which net interest expense could
be affected by an adverse movement in interest rates. In order to minimise exposure
to changes to interest rates, the Group has purchased certain hedging instruments, the
purpose of which is to fix the interest rates payable on its loan facilities.
The Group finances its operations through a mixture of retained earnings, interest-bearing
loans and borrowings and capital raised. The Group borrows in the desired currencies at
floating rates and uses interest rate swap contracts to generate the desired interest rate
profile and to manage the Group’s exposure to interest rate fluctuations.