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## 26 FINANCIAL RISk MANAGEMENT 

the Group’s activities expose it to a variety of financial risks, market risk (including currency risk and interest rate risk), credit risk and liquidity risk. the Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. the Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to manage certain risk exposures. derivatives are exclusively used for economic hedging purposes, i.e. not as trading or other speculative instruments, however not all derivative financial instruments qualify for hedge accounting. 

risk management is carried out based on policies approved by the Board of directors. the Group treasury policy provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk. the parent is not directly exposed to any significant financial risk. 

## (a) Market risk 

## Foreign exchange risk 

the Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the aud, uSd and the GBp. the Group is exposed to currency risk on conversion of the trading results from its subsidiaries operating in australia and the united Kingdom, and any cash remitted between australia and the united Kingdom and new Zealand. the Group does 

at the reporting date the interest rate profile of the Group’s banking facilities was: 

not hedge for such remittances. the Group is exposed to purchases that are denominated in a currency other than the functional currency of Group entities, and over 90% of purchases are denominated in united States dollars. hedging of this exposure is detailed in note 10. Interest on borrowings is denominated in either new Zealand dollars or australian dollars, and is paid for out of surplus operating cashflows generated in new Zealand or australia. 

refer to note 10 which shows the forward foreign exchange contracts held by the Group as derivative financial instruments at balance date. a sensitivity analysis of foreign exchange rate risk on the Group’s financial assets and liabilities is provided in the table below. 

## Cash flow and fair value interest rate risk 

the Group’s main interest rate risk arises from floating rate borrowings drawn down under bank debt facilities. the Group uses interest rate swaps to hedge floating rate borrowings in accordance with the Group treasury policy. Interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. 

refer to note 10 for notional principal amounts and valuations of interest rate swaps outstanding at balance date. a sensitivity analysis of interest rate risk on the Group’s financial assets and liabilities is provided in the table below. refer to note 17 for further details of the Group’s borrowings. 

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Interest rates on loans currently range from 3.59% – 4.47% (2011: 3.65% – 5.99%). the Group has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its long-term debt. the cashflow hedge (gain)/loss on interest rate swaps at balance date was $986,157 (2011: $338,244). 

