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Notes to the Financial Statements

For the year ended 30 June 2009


y) Foreign currency translation

Foreign currency transactions are translated into the Entity’s functional currency at the rates of exchange ruling at the dates of the transactions. Assets and liabilities denominated in foreign currencies at balance date are translated into the functional currency at the rates of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the Income Statement.

interest rate and ageing analysis for credit risk. Liquidity risk is managed through the use of future rolling cash flow forecasts together with the continuity of funding through the facilities mentioned in note 24(a) and 24 (b).

Primary responsibility for identification and control of financial risks rests with the management under authority of the Board. The Board reviews and agrees on policies for managing each of the risks identified below.

Risk exposures and responses

Interest rate risk

The assets and liabilities of foreign operations are translated to Australian Dollars at foreign exchange rates ruling at the balance date. The revenues and expenses of foreign operations are translated into Australian Dollars at rates approximating the foreign exchange rate ruling at the date of the transactions. Equity items are translated at historical rates.

Foreign currency differences arising on translation are recognised directly in Foreign Currency Translation Reserve (‘FCTR’), as a separate component of equity.

z) Comparative figures

To enable meaningful comparison, some comparatives have been reclassified to conform with the current year’s presentation.


The Consolidated Entity’s exposure to market interest rates relates primarily to the obligations arising from interest-bearing loans and overdraft. The Consolidated Entity’s interest rate risk policy is to manage its finance costs using a mix of fixed and variable rate debt. The target is to hedge approximately 50% of forecast average borrowings at fixed or capped rates of interest. Forecast average borrowings are derived from periodic rolling cash flow forecasts together with an allowance for potential acquisitions. During the financial year a significant amount of debt has been repaid. As a result, the current fixed rate debt is above the target.

Borrowings issued at variable rates expose the Consolidated Entity to cash flow interest rate risk. The Consolidated Entity manages the cash flow effect of interest rate risk by entering into interest rate cap and interest rate swap contracts.

The Consolidated Entity’s principal financial instruments comprise receivables, payables, finance leases, derivatives, cash, bank loans and overdrafts.

The Consolidated Entity manages its exposure to financial risks in accordance with policies recommended by management and approved by the Board. The objective of these policies is to manage key financial risks such as interest rate, foreign currency, credit and liquidity. The overall risk management

program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Consolidated Entity.

The Consolidated Entity uses derivative financial instruments, principally interest rate cap and interest rate swap contracts to hedge interest rate risk exposures. Derivatives are exclusively used for hedging purposes, ie not as trading or other

speculative instruments.

The Consolidated Entity uses different methods to measure and manage different types of risks to which it is exposed. These methods include sensitivity analysis in the case of

Interest rate cap contracts are entered into for a principal Australian Dollar amount by paying an upfront premium that covers a specific period. The strike rates for these contracts are benchmarked against the BBSY bid rate (Australian Bank Bill Swap Reference Rate – Average Bid Rate) on a monthly basis. Settlement occurs monthly, in favour of the Consolidated Entity, should the BBSY bid rate be above the cap strike rate (movements in the variable rate are directly proportional to movements in the BBSY bid rate).

Under the interest rate swaps, at the end of every quarter, the Consolidated Entity and the counterparty agree to exchange the difference between the interest calculated by applying the fixed contract rates and that calculated by applying the BBSY bid rate to the principal Australian Dollar amounts.

The Consolidated Entity’s interest rate derivatives do not qualify for hedge accounting treatment. Gains or losses arising from changes in fair value are recognised in profit or loss.

AVJennings Limited ABN 44 004 327 771 37

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