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CIMIC Group Limited Annual Report 2016 |
Financial Report
Notes continued
for the 12 months to 31 December 2016
35. FINANCIAL INSTRUMENTS
CONTINUED
d) Foreign currency risk
Foreign currency risk is the risk that the value of a financial commitment, a recognised asset or liability will fluctuate due to changes in
foreign currency rates. The Group’s foreign currency risk arises primarily from net investments in foreign operations. The Group uses
non-derivative financial instruments, such as borrowings in the foreign currencies, to hedge its investments in foreign operations. Foreign
currency gains and losses arising from translation of net investments in foreign operations are recognised in the foreign currency
translation reserve until realised.
Shareholders of the Group are exposed to foreign currency risk on project receipts and expenditure on plant and equipment denominated
in currencies other than their functional currency. Where this foreign currency risk is considered to be significant, shareholders of the
Group enter into forward exchange contracts to hedge their foreign currency risk. These hedges are classified as cash flow hedges and
measured at fair value.
Cash flow hedges
The Group’s cash flow hedges protect against foreign exchange rate fluctuations on highly probable forecast transactions using foreign
exchange forward contracts. As at reporting date the fair value of these outstanding designated derivatives recognised in equity is $1.0
million (31 December 2015: $0.6 million). It is expected that the current hedged forecast transactions will occur during the periods
outlined in section (b) above and will affect the statement of profit or loss in the same periods. There are no gains or losses recognised in
the statement of profit or loss during the period due to hedge ineffectiveness.
Exposure to foreign currency risk
The most significant foreign currencies the Group is exposed to is the United States dollar (US$) along with the U.A.E Dirham (AED) and
Hong Kong dollar (HKD), both of which are pegged to the US$. The applicable Australian dollar to United States dollar exchange rates
during or at the end of the relevant reporting period, were as follows:
Assets and liabilities
Statement of Profit or Loss
December 2016 December 2015
12 months to
December 2016
12 months to
December 2015
US$ United States dollar
0.72
0.73
0.74
0.75
At 31 December 2016, the share of the Group’s assets and liabilities denominated in US$ was: assets US$4,318.4 million
(31 December
2015: US$4,165.3 million); liabilities US$1,473.1 million
(31 December 2015: US$1,777.4 million). The majority of these US$ balances are
held in entities with a US$ functional currency.
Sensitivity analysis
A movement in the United States dollar (US$) against the Australian dollar (AU$) at reporting date would have increased / (decreased)
equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain
constant. The analysis was performed on the same basis for the period ended 31 December 2015.
Equity
Statement of Profit or Loss
December 2016
$m
December 2015
$m
12 months to
December 2016
$m
12 months to
December 2015
$m
US$ depreciates by 5% against AU$ (AU$ appreciates)
(159.6)
(121.6)
(2.1)
(2.2)
US$ appreciates by 5% against AU$ (AU$ depreciates)
159.6
110.0
2.1
2.5
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