RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Notes to the Consolidated Annual Financial Statements 42. Financial instruments (Continued)

Rand Water’s main objectives of its foreign currency risk policies are: • To mitigate foreign currency risk exposures; • To bring certainty about future Rand cash flows where foreign currency is involved; and • To insulate the Group’s statement of comprehensive income against exchange rate fluctuations.

All foreign currency risk exposures are hedged within the guidelines of the Board approved Treasury policy and delegation of authority as soon as the supplier agreements are signed. It is the Group’s preference to enter into Rand‑based supplier agreements, if this can be achieved at an acceptable cost, with no foreign currency risk recourse to Rand Water. If this approach is not cost effective, Rand Water will then hedge its own financial position with vanilla hedging instruments after careful consideration and analysis of the taxation, financial risk, accounting, operational and system implications. Interest rate risk The Interest rate risk refers to the susceptibility of Rand Water’s financial position to adverse fluctuations in market interest rates. Rand Water’s primary interest rate risk management objective is to protect its funding plan and Asset and Liability Management (ALM) strategies from adverse fluctuations in market interest rates. To achieve this objective, it is the policy of Rand Water to measure and manage its interest rate risk exposure both over the short and long term to protect its profits and ensure continued financial sustainability.

The Group manages its interest rate risk by maintaining an appropriate mix between fixed and floating interest rate borrowings and investments.

The interest rate profile of the Group’s interest bearing financial instruments, is as follows:

Figures in Rand thousand

Group

Rand Water

2023

2022 Restated *

2023

2022 Restated *

Fixed rate instruments Financial assets

5 539 570 5 539 570 2 948 495 2 948 495 (3 799 139) (3 799 139) (3 797 979) (3 797 979) 1 740 431 1 740 431 (849 484) (849 484)

Financial liabilities

Variable rate instruments Financial assets

5 749 841 5 163 150 5 740 298 5 161 730 (585 731) 5 163 995 4 577 304 5 154 567 4 575 999 (585 846) (585 731) (585 846)

Financial liabilities

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, therefore a change in interest rates at the reporting date would not affect income or loss.

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