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## 24. FINANCIAl RISk mANAgEmENT ObjECTIVES AND POlICIES 

The Company’s principal financial liabilities, other than derivatives, comprise bank loans and overdrafts, letters of credit, notes payable, finance leases, and trade payables. The only purpose of these financial liabilities is to finance the Company’s operations. The Company has various financial assets such as trade receivables, other accounts receivable, cash and cash equivalents, which arise directly from its operations. The Company also enters into derivative transactions, primarily interest rate swap and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Company’s operations and its sources of financing. 

The Company’s policy is and has been throughout 2011 and 2010 that no speculative trading in derivatives shall be undertaken except as noted below. The main risks arising from the Company’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Audit Committee of the Board of Directors reviews and approves policies for managing each of these risks, which are summarized below. 

## intereSt rate riSk 

The Company’s exposure to the risk of changes in market interest rates arises out of the Company’s short-term debt obligations with floating interest rates. For both of fiscal 2011 and 2010 the Company’s policy is to manage its interest cost using a mix of fixed and variable rate debts. The Company’s objective is to keep between 35% and 55% of its borrowings at fixed rates of interest. To manage this, the Company enters into fixed rate debt facilities or interest rate swaps, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed upon notional principal amount. These swaps are designated to hedge underlying debt obligations. Interest rate Options that effectively fix the maximum rate of interest that the Company will pay may also be used to manage this exposure. Under the terms of the long-term debt the Company is committed to hedge 50% of its long-term debt for a period of 2 years. At December 31, 2011: 1% (January 1, 2011: 50%; January 3, 2010: 65%) of the Company’s borrowings are at a fixed rate of interest, which will increase by March 16, 2012, as 50% must be fixed according to the terms of the long-term debt. 

The following table demonstrates the sensitivity of the Company’s profit before tax to a change in interest rates, with all other variables held constant (through the impact on floating rate borrowings). There is no impact on the Company’s equity except through changes in income. 

