Financial statements
Section B: Notes to the Group financial statements for the year ended 30 June 2024
Section B: Notes to the Group financial statements for the year ended 30 June 2024
B14
Financial risk management and derivatives
Financial risk management The Group’s activities expose it to a number of financial risks, including market risk (currency risk and interest rate risk), credit risk and liquidity risk. These risks arise in the normal course of business and the financial risk management function is carried out centrally under policies approved by the Board. The Group’s financial risk management policies allow derivative transactions to be undertaken for the purpose of reducing financial risks and do not permit speculative trading. The Group continuously monitors risk exposures over time through reviewing cash flow sensitivities, market analysis and ongoing communication within the Group. When measuring financial risk, the Group considers the positive and negative exposures, existing hedges and the ability to offset exposures. Derivatives The Group uses derivative financial instruments in the normal course of business to hedge exposures to fluctuations in interest rates and foreign exchange rates. In addition, Financial Power Purchase Agreements (PPAs) are used to manage a portion of the Group's exposure to electricity prices. The table below outlines the Group's derivative financial instruments which are recognised and measured at fair value on a recurring basis.
2024
2023
$M $M Current Non-current Current Non-current
Assets Interest rate swap contracts
2
207 812
— —
263 971
129
Cross-currency interest rate swap contracts
6
17
Power purchase agreements
5 5
19
137
1,036
Total derivative financial instrument assets
1,253
Liabilities Cross-currency interest rate swap contracts
— —
259
— — — —
144
Forward exchange contracts
11 —
2
5 5
Swap option contracts
—
Total derivative financial instrument liabilities
270
146
Derivatives accounting policy Initial recognition and subsequent measurement
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. Classification Derivative financial instruments are included as non-current assets or liabilities, except for those that mature in less than 12 months from the reporting date, which are classified as current. Right to set-off Derivative financial instruments are recorded on a net basis in the consolidated balance sheet where there is a legally recognised right to set-off the derivative asset and the derivative liability and the Group intends to settle on a net basis. Currently there is no right or basis to present any financial assets or financial liabilities on a net basis, and as such no financial assets or financial liabilities have been presented on a net basis in the Group's balance sheet at the reporting date. Derecognition Derivative assets are derecognised when the rights to receive cash flows from the derivative assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of the asset. Derivative liabilities are derecognised when the contractual obligations are discharged, cancelled or expired.
149
148
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