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FINANCIAL Risk Management

FINANCIAL RISK FACTORS

The company has a number of investments in foreign subsidiaries,

The Group’s activities expose it to a variety of financial risks,

whose net assets are exposed to currency translation risk.

including market risk (this includes currency risk, fair value interest rate risk and price risk) as well as credit risk, liquidity risk and

Operational cash flow risk exists when loans are raised in

cash flow interest rate risk. The Group’s overall risk management

1 currency and repaid using cash generated in a different

programme focuses on the unpredictability of financial markets

currency. This risk is mitigated by the use of cross-currency

and seeks to minimise potential adverse effects on the financial

swaps where appropriate.

performance of the Group. The Group uses derivative financial instruments such as forward exchange contracts and cross-

Price risk

currency swaps to hedge certain exposures.

The Group is only exposed to price risk to a very limited extent, through investments classified as available-for-sale. The Group

Risk management is carried out by a central treasury

is not exposed to commodity price risk.

department in close co-operation with operational units, using guidance provided by the Audit & Risk Committee of the Board

CREDIT RISK

of Directors. A significant part of administration of foreign

The Group has no significant concentrations of credit risk

exchange risk management is outsourced. Group treasury

except as disclosed in note 12. The Group has policies in place

identifies, evaluates and hedges financial risks. The Audit &

to ensure that sales of products and services are made to

Risk Committee of the Board provides principles for overall risk

customers with an appropriate credit history. Trade receivables

management, as well as policies covering specific areas, such

comprise a wide customer base. Ongoing credit evaluations on

as foreign exchange risk, interest rate risk, credit risk, use of

the financial condition of customers are performed and where

derivative financial instruments and investing excess liquidity.

appropriate credit guarantee insurance cover is purchased.

MARKET RISK

Cash is placed with substantial financial institutions; derivatives

Foreign currency risk

are placed with high quality financial institutions.

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily

LIQUIDITY RISK

in respect of the following currencies:

Prudent liquidity risk management implies maintaining sufficient

United States Dollar

cash resources and ensuring the availability of funding through

Pound Sterling

an adequate amount of credit facilities. Due to the dynamic

Euro

nature of the underlying business, Group treasury aims at

Australian Dollar

maintaining flexibility in funding by negotiating committed credit

Indian Rupee

lines for the Group.

Foreign exchange risk arises from future transactions, recognised assets and liabilities and net investments in foreign

The Group manages liquidity risk through forecasting and

operations which are denominated in a currency which is not

monitoring cash flow requirements on a daily basis.

the Group’s functional currency. CASH FLOW AND FAIR VALUE INTEREST RATE RISK It is the policy of the Group for its South African operations to

It is the policy of the Group to limit its exposure to interest rate

hedge 100% of its purchases in foreign currencies using forward

movements and, where appropriate, enter into arrangements to

exchange contracts, except where the foreign purchases will

mitigate these risks.

form a significant part of goods that will eventually be exported. These imports, as well as the related exports, are hedged to

The Group’s interest rate risk arises from its interest-bearing

ensure that the export rates obtained will on average exceed

borrowings and its investment in preference shares, as well as

the import rates paid. Foreign operations do not make use of

the preference shares issued in terms of the BEE transaction

forward exchange contracts. The average length of forward

during the 2005 financial year. Financial instruments with

exchange contracts during the year was 2,4 months.

floating rates are subject to cash flow interest rate risk; financial instruments with fixed rates are subject to fair value interest rate risk. The majority of the Group’s borrowings are subject to floating interest rates.

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Aspen Annual Report 2006

Profile for Aspen Holdings

Aspen Annual Report 2006  

Aspen Annual Report 2006