Notes to the Financial Statements Note 11: Financial Risk Management continued Risk management approach The Group uses sensitivity analysis (together with other methods) to measure the extent of financial risks and decide if they need to be mitigated. If so, the Group’s policy is to use derivative financial instruments, such as foreign exchange contracts and interest rate swap and forward contracts, to support its objective of achieving financial targets while seeking to protect future financial security. The aim is to reduce the impact of short-term fluctuations in currency or interest rates on the Group’s earnings. Derivatives are exclusively used for this purpose and not as trading or other speculative instruments. a. Foreign Exchange Risk The objective is to match the contracts with committed future cash flows from sales and purchases in foreign currencies to protect the Group against exchange rate movements. The Group reduces its foreign exchange risk on net investments in foreign operations by denominating external borrowings in currencies that match the currencies of its foreign investments. The total value of forward exchange contracts in place at reporting date is nil (2021: Nil). Sensitivity analysis – USD values Profit after tax – sensitivity to general movement of 1% A movement of 1% in the USD exchange rate against AUD, EUR, CHF and GBP would not generate a material impact to profit after tax. Equity – sensitivity to general movement of 1% Any movement is recorded in the Foreign Currency Translation Reserve. The below chart is based on decreasing the actual exchange rate of US Dollars to AUD, EUR, CHF and GBP as at 30 June 2022 and 2021 by 1% and applying these adjusted rates to the net assets (excluding investments in subsidiaries) of the foreign currency denominated financial statements of various Group entities. Amounts shown are in US$m. FX Sensitivity on Equity (US$m) -5 0 5 10 15 GBP CHF EUR AUD 2022 2021 Any movement is recorded in the Foreign Currency Translation Reserve. The below chart is based on decreasing the actual exchange rate of US Dollars to AUD, EUR, CHF and GBP as at 30 June 2022 and 2021 by 1% and applying these adjusted rates to the net assets (excluding investments in subsidiaries) of the foreign currency denominated financial statements of various Group entities. Amounts shown are in US$m. b. Interest Rate Risk At 30 June 2022, it is estimated that a general movement of one percentage point in the interest rates applicable to investments of cash and cash equivalents would have changed the Group’s profit after tax by approximately $9.5m (2021: $12.7m). This calculation is based on applying a 1%movement to the total of the Group’s cash and cash equivalents at year end (excluding debt and equity proceeds in connection with the acquisition of Vifor as disclosed in Note 2). At 30 June 2022, it is estimated that a general movement of one percentage point in the interest rates applicable to floating rate unsecured bank loans would have changed the Group’s profit after tax by approximately $3.6m (2021: $3.9m). This calculation is based on applying a 1%movement to the total of the Group’s floating rate unsecured bank loans at year end. CSL Limited Annual Report 2021/22 120
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