Corporate Report for the year ended 30 June 2022

Introduction and overview

Business performance

Governance and risk

Directors’ report

Remuneration report

Financial statements

Sustainability supplement

Security holder information

Section B: Notes to the Group financial statements for the year ended 30 June 2022

Section B: Notes to the Group financial statements for the year ended 30 June 2022

B15 Derivatives and financial risk management (continued) Market risk (continued) Interest rate risk

The Group’s main exposure to interest rate risk arises from our borrowings and cash and cash equivalents. The Group manages the interest rate risk on our borrowings by entering into fixed rate debt facilities or by using interest rate swaps to convert floating rate debt to fixed interest rates. The Group’s policy is to hedge the interest rate exposure on drawn debt to between 80% and 100%, and to ensure compliance with any covenant requirements of our funding facilities. As at 30 June 2022, 100% (2021: 100%) of the Group’s interest rate exposure on variable rate borrowings was hedged (excluding working capital facilities). The effects of the interest rate related hedging instruments on the Group’s financial position and performance are as follows:

2022

2021

$M

$M

Interest rate swaps Carrying amount Notional amount 1

263

(74)

3,225

3,359

August 2022 to January 2035

February 2022 to January 2035

Maturity dates

1:1

Hedge ratio

1:1

356

Increase/(decrease) in fair value of outstanding hedging instruments since inception (Decrease)/increase in value of hedged item used to determine hedge effectiveness

(158)

(361)

161

1. The notional amounts disclosed in the table above exclude $408 million (2021: $393 million) relating to interest rate swaps which are not hedge accounted. These notional amounts are however included in the net exposure to interest rate risk table. The notional amounts above also include $407 million (2021: $407 million) of forward starting swaps which are hedging the same underlying interest rate exposures and therefore not included in the net exposure to interest rate risk table. The notional amount of interest rate swaps hedging floating rate interest rate exposures relating to fixed-for-floating cross-currency swaps is also excluded (2022: $nil; 2021: $nil).

Maturity profile―notional value of interest rate swaps are as follows:

Total nominal amount

2022

Less than 12 months

$M Interest rate swaps

1–5 years Over 5 years

455

1,143 1.8%

1,627 1.9%

3,225

Average fixed interest rate 1

2.9%

—

2021 $M Interest rate swaps

166

1,978 1.7%

1,215 1.8%

3,359

Average fixed interest rate 1

2.3%

—

1. Based on average fixed rate of interest rate swap contracts, which does not include any margins that may be applicable on the hedged debt instrument. Effectiveness of hedging relationships designated are as follows:

Amount reclassified from other comprehensive income to profit and loss

Hedge gains recognised in other comprehensive income

Hedge ineffectiveness losses/(gains) recognised in profit and loss

Line item in profit and loss that includes hedge ineffectiveness

2022

Line item in profit and loss for reclassification

$M Interest rate risk

(333)

—

Net finance costs

(4)

Net finance costs

2021 $M Interest rate risk

(203)

—

Net finance costs

—

Net finance costs

161 161

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