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 forecasted sales. There are no material outstanding foreign exchange forward contracts at 30 June 2023 and 2022. Sensitivity analysis – USD values Profit after tax – sensitivity to general movement of 1% Monetary items, including financial asset and liabilities, denominated in currencies other than the functional currency of an operation are revalued at the end of each reporting period to US dollar equivalents and the associated gain or loss is taken to the profit or loss. The following chart is based on decreasing the actual rate of US Dollars to AUD, EUR, CHF, GBP and CNY as at 30 June 2023 and 2022 by 1% and applying these adjusted rates to the net monetary assets/ liabilities denominated in foreign currency of various Group entities. Amounts shown are rounded to the nearest US$m. FX Sensitivity on Profit after tax (US$m) 2023 2022 -10 -5 0 5 10 CNY GBP CHF EUR AUD Equity – sensitivity to general movement of 1% Where the functional currency of a subsidiary is not US dollars, the subsidiary’s assets and liabilities are translated on consolidation to US dollars using the exchange rates prevailing at the reporting date, and its profit and loss is translated at average exchange rates. All resulting exchange differences are recognised in the foreign currency translation reserve in equity. The following chart is based on decreasing the actual exchange rate of US Dollars to AUD, EUR, CHF, GBP and CNY as at 30 June 2023 and 2022 by 1% and applying these adjusted rates to the net assets/liabilities (excluding investments in subsidiaries) of the foreign currency denominated financial statements of various Group entities. Amounts shown are rounded to the nearest US$m. FX Sensitivity on Equity (US$m) 2023 2022 -5 0 5 10 CNY GBP CHF EUR AUD b. Interest Rate Risk As at 30 June 2023, 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 $10m (2022: $10m). This calculation is based on applying a 1%movement to the total of the Group’s cash and cash equivalents at year end. As at 30 June 2023, 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 $22m (2022: $4m). 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 2022/23 140
RkJQdWJsaXNoZXIy MjE2NDg3