Home' Slater and Gordon Annual Report : Slater and Gordon AR 2016 Contents Notes to the Financial Statements
For the Year Ended 30 June 2016
Slater and Gordon Limited
5.4 .2 Interest Rate Risk (continued)
Interest rate swap transactions are entered into by the Group to exchange variable interest payment obligations to fixed,
to protect long-term borrowings from the risk of increasing interest rates. The Group uses swap contracts to maintain a
designated proportion of fixed to floating debt.
The notional principal amounts of the swap contracts approximate 12% (30 June 2015: 14%) of the Group’s outstanding
borrowings on the SFA at 30 June 2016. The net interest payments or receipt settlements of the swap contracts are
matched to the maturity of the cash advance they are hedging. The net settlement amounts are brought to account as an
adjustment to interest expense. At the end of the reporting period, the details of outstanding contracts, all of which are to
receive floating/pay-fixed interest rate swaps, are as follows:
Maturity of notional amounts
Effective average fixed interest
Notional principal value
Interest rate swaps are measured at fair value with gains and losses taken to the cash flow hedge reserve until such time
as the profit or loss associated with the hedged risk is recognised in the consolidated statement of comprehensive
Interest Rate Sensitivity
If interest rates were to increase/decrease by 100 basis points from rates used to determine fair values as at the end of
the reporting period, assuming all other variables that might impact on fair value remain constant, then the impact on
profit for the year and equity would be as follows:
+/- 100 basis points:
Impact on profit after tax
Impact on equity
As borrowings are measured at amortised cost and not fair value, any movement in interest rates does not impact the
carrying value of those borrowings but would impact their related interest charges.
5.4.3 Foreign Exchange Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group’s exposure to foreign currency risk relates primarily to the Group’s
operating activities (when revenue or expense is denominated in a different currency from the Group’s presentation
currency), and the Group’s net investments in foreign subsidiaries (“translational risk”) .
Translational risk relating to the acquisition of United Kingdom subsidiaries is partially hedged on an economic basis
through borrowings of those United Kingdom subsidiaries also denominated in GBP, resulting in an overall reduction in
the net assets that are translated. The remaining translation exposure is not hedged.
The Group has no significant exposures to currency risk other than the transactional and translational foreign currency
exposures in relation to its UK subsidiaries. Any impacts on the balances relating to Slater and Gordon subsidiaries in
the UK as a result of movements in the foreign exchange rate are recorded in other comprehensive income in the foreign
currency translation reserve which forms part of equity. Refer to Note 1.5.
The Group has no other significant exposures to foreign exchange risk.
5.4.4 Credit Risk
Credit risk arises from the financial assets of the Group. The main exposure to credit risk in the Group is represented by
receivables (debtors and disbursements) owing to the Group. The Group’s exposure to credit risk arises from potential
default of the counterparty, with a maximum exposure equal to the carrying amount of those assets as disclosed in the
statement of financial position and notes to the financial statements.
The Group held cash and cash equivalents of $82.5m at 30 June 2016 (30 June 2015: $97.0m). The credit risk
associated with cash and cash equivalents is considered as minimal as the cash and cash equivalents are held with
reputable financial institutions in Australia and the UK.
Slater and Gordon Limited 79
Annual Report 2016
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