(d) C ash flow and fair value interest rate risk
The Group’s interest-rate risk arises from floating rate borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk.
The Group manages its long-term cash flow interest-rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic
effect of converting borrowings from floating rates to fixed rates. The Group evaluates a variety of factors before entering into interest rate swaps, these
include but are not limited to market conditions and forecast borrowing requirements. Under the interest-rate swaps, the Group agrees with other parties to
exchange, at specified intervals (quarterly or semi-annually), the difference between fixed contract rates and floating-rate interest amounts calculated by
reference to the agreed notional principal amounts. As at 30 June 2010 the Group had one interest rate swap in place (refer Note 22).
Capital risk management
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to provide returns to
shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to
reduce debt. Capital is managed in order to maintain a strong financial position and ensure that the Group’s funding needs can be optimised at all times in a
cost-efficient means to support the goal of maximising shareholder wealth.
C onsolidated
note 2010 2009
$’000 $’000
Cash advances and bridge facility 19 149,499 443,293
United States Private Placement 19 200,755 -
Mandatory Convertible Note 19 20,052 26,551
Finance leases 19 17,156 16,826
Total financial institution borrowings 387,462 486,670
Less: cash and cash equivalents 8 (112,716) (97,979)
Net debt 274,746 388,691
Total equity 804,042 777,296
Total capital 1,078,788 1,165,987
Gearing ratio – net debt to total capital 25% 33%
Gearing ratio – net debt to equity 34% 50%
Gearing ratio – net debt to EBITDA 1.52x 1.73x
(Earnings before interest (net finance cost), taxation, depreciation and amortisation/impairment)
Other risks
Translation risk
The financial statements of each of the Group’s foreign subsidiaries are prepared in local currency. For the purposes of preparing the Group’s consolidated
financial information, each foreign subsidiary’s financial statements are translated into Australian dollars using the applicable foreign exchange rates as at
and for the period ended on the statement of financial position date. A translation risk therefore exists on translating the financial results and position of the
foreign subsidiaries into Australian dollars for the purposes of presenting consolidated Group financial information. Volatility in foreign exchange rates can
therefore impact the Group’s net profit, net assets and the foreign currency translation reserve.
Country risk
The Group is exposed to country risk by the very nature of running a global business. Country risk is the risk that political, legal, security or economic
developments in a single country could adversely impact performance. The country risk exposure is defined as the sum of the equity of all subsidiaries and
associates and joint ventures in cross-jurisdictional transactions such as loans, guarantees and trading accounts. Country risk is continually monitored by
the ‘Risk Group’ under the Chief Risk and Legal Officer / Company Secretary.