Notes to the
fnancial
statements
for the year ended 30 June 2011 –
Wesfarmers Limited and its controlled entities
142 Wesfarmers Annual Report 2011
26: Financial risk management objectives and policies (continued)
(b) Market risk
Foreign currency risk
The Group’s primary currency exposures are in relation to US dollars and arise from sales or purchases by a division in currencies other than the
division’s functional currency.
As a result of operations in New Zealand, the Group’s balance sheet can be affected by movements in the AUD/NZD exchange rates. The Group
mitigates the effect of its structural currency exposure by borrowing in NZ dollars in New Zealand.
The Group requires all divisions to hedge foreign exchange exposures for frm commitments relating to sales or purchases or when highly probable
forecast transactions have been identifed. Before hedging, the divisions are also required to take into account their competitive position. The
hedging instrument must be in the same currency as the hedged item. Divisions are not permitted to speculate on future currency movements.
The objective of Wesfarmers’ policy on foreign exchange hedging is to protect the Group from adverse currency fuctuations. Hedging is
implemented for the following reasons:
–– protection of competitive position; and
–– greater certainty of earnings due to protection from sudden currency movements.
The Group aims to hedge approximately 45 per cent to 55 per cent (over fve years) of its foreign currency sales for which frm commitments
or highly probable forecast transactions existed at the balance sheet date. The current hedge contracts extend out to June 2016. Such foreign
currency purchases arise predominantly in the Resources division.
The Group aims to hedge approximately 70 per cent to 100 per cent of its non-capital expenditure related foreign currency purchases for
which frm commitments or highly probable forecast transactions exist, up to 12 months forward. The Group currently hedges 100 per cent
of capital expenditure related foreign currency purchases to match expected payment dates and these may extend beyond 12 months. The
current hedge contracts extend out to January 2013. Such foreign currency purchases arise predominantly in the retail, Chemicals, Energy and
Fertilisers, and Industrial and Safety divisions.
Refer to note 27 for details of outstanding foreign exchange derivative contracts used by the Group to manage exposure to foreign exchange
risk as at 30 June 2011.
The Group’s exposure of its fnancial instruments to the US dollar, Euro and NZ dollar (prior to hedging contracts) at the reporting date were
as follows:
2011
2010
USD
EUR
NZD
USD
EUR
NZD
CONSOLIDATED
A$m
A$m
A$m
A$m
A$m
A$m
Financial assets
Cash and cash equivalents
55
6
76
64
–
52
Trade and other receivables
118
5
166
93
2
205
Reinsurance and other recoveries
–
–
452
–
–
48
Finance advances and loans
–
–
78
–
–
71
Cross currency interest rate swap
5
–
–
103
–
–
Hedge foreign exchange derivative assets
403
–
–
86
–
–
Financial liabilities
Trade and other payables
162
15
214
117
7
157
Interest‑bearing loans and borrowings
1,236
673
273
809
733
208
Cross currency interest rate swap
83
91
–
–
30
–
Insurance liabilities
–
–
628
–
–
216
Hedge foreign exchange derivative liabilities
68
2
–
74
3
–
Non‑hedge foreign exchange derivative liabilities
–
–
–
1
–
–