Investor Presentaiton

150 Notes to the Consolidated Financial Statements 4.7 Financial risk management (continued) Capital structure, financing and risk management 4 151 Annual Report 2023 Woolworths Group 2 Interest rate swaps - fair value hedges At the reporting date, interest rate swaps designated as fair value hedges have an unrealised loss of $140 million (2022: $148 million unrealised loss). These interest rate swaps are designated to be in a 100% hedge relationship against the identified exposure, and the movement in the unrealised gain of $8 million has been recognised in the Consolidated Statement of Profit or Loss (2022: $164 million unrealised loss), offsetting the movement in the fair value of the hedged item. CASH FLOW HEDGE RESERVE The table below details the movements in the cash flow hedge reserve during the period: Balance at start of period 2023 $M 2022 $M 85 (13) highlights 1 Performance (III) HEDGE ACCOUNTING ARRANGEMENTS At the reporting date, the fair value and notional amounts of derivatives entered into for hedging purposes for the Group are: NOTIONAL VALUE FAIR VALUE ASSET FAIR VALUE LIABILITY 2023 $M 2022 $M 2023 2022 2023 2022 $M $M $M $M (IV) 4.7 Financial risk management (continued) Cash flow hedges Forward exchange contracts 865 1,911 Foreign currency options 802 222 21 94 (1) 22 43 94 (1) (6) Business review Cross currency swaps European Medium Term Notes 880 880 32 7 (29) (15) Gain/(loss) arising on changes in fair value of hedging instruments entered into for cash flow hedges: Forward exchange contracts and foreign currency options 15 85 Cross currency swaps (47) 33 Interest rate swaps 3 Interest rate swaps Medium Term Notes (Green Bond) 400 3 Income tax related to gains recognised in other comprehensive income 8 (33) (21) 85 Fair value hedges Transfers to initial carrying amount of hedged items: Interest rate swaps Forward exchange contracts and foreign currency options (85) 19 Medium Term Notes (Green Bond) 400 400 Domestic Medium Term Notes 600 600 3 1 (13) (13) Income tax related to amounts transferred to initial carrying amount of hedged items 26 (6) (90) (93) Domestic Medium Term Notes 350 350 (40) (42) (59) 5 13 85 Balance at end of period 3 (143) (148) Total 81 101 (173) (169) (V) SENSITIVITY ANALYSIS 3 Directors' Report 4 Report Financial LO 5 Other information Forward exchange contracts and foreign currency options At the reporting date, the net amount of unrealised gains under forward exchange contracts and foreign currency options that are hedging anticipated purchases of inventory and equipment is $42 million (2022: $88 million net unrealised gain). The hedge relationships are all assessed as highly effective with insignificant hedge ineffectiveness and the unrealised gain of $42 million has been recognised in the hedge reserve (2022: $88 million gain). The weighted average exchange rates hedged by outstanding forward exchange contracts and foreign currency optionsare AUD/USD: 0.68 (2022: 0.73) and AUD/EUR: 0.63 (2022: 0.64). Cross currency swaps At the reporting date, cross currency swaps have a net unrealised gain of $3 million (2022: $8 million net unrealised loss), of which $17 million is attributable to an unrealised gain on the foreign exchange component (2022: $41 million net unrealised loss) and $14 million is attributable to an unrealised loss on the interest rate component (2022: $33 million net unrealised gain). The interest rate component of the cross currency swaps are designated as cash flow hedges, in a 100% hedge relationship with the underlying debt. Accordingly, the unrealised loss of $14 million attributable to the interest rate component has been recognised in the cash flow hedge reserve (2022: $33 million) at the reporting date, with insignificant hedgeineffectiveness. The movement in the recognised gain attributable to the foreign exchange component of $17 million (2022: $41 million loss) has been recognised in the Consolidated Statement of Profit or Loss during the period, completely offsetting the foreign exchange revaluation of the underlying debt. Interest rate swaps - cash flow hedges At the reporting date, interest rate swaps designated as cash flow hedges have an unrealised gain of $3 million (2022: nil). These interest rate swaps are designated to be in a 100% hedge relationship against the identified exposure, and the movement in the unrealised gain of $3 million has been recognised in the cash flow hedge reserve (2022: nil) at the reporting date, with insignificant hedge ineffectiveness. Reasonably possible changes at the reporting date of the Group's exposure to floating interest rate risk and foreign currency risk, after taking into consideration hedges of foreign currency payables, foreign currency borrowings and forecast foreign currency transactions, could result in the following impacts: INTEREST RATE RISK FOREIGN EXCHANGE RISK (VI) 1% change could result in either a $2 million increase or decrease on equity before tax and no impact on profit before tax. 10% change could result in either a $141 million increase or $143 million decrease on equity before tax and no impact on profit before tax. POWER PURCHASE AGREEMENT In prior year, the Group entered into a power purchase agreement (PPA) for a period of 9.5 years. As at 25 June 2023, the fair value of the PPA was $32 million (2022: $22 million). The PPA is not a physical electricity supply contract but operates as a contract for difference where a strike price isagreed. If the electricity spot price is higher than the strike price, the counterparty will pay the difference to the Group. Conversely, if the electricity spot price is lower than the strike price, the Group will pay the difference to the counterparty. The PPA is classified as a derivative and is measured at fair value through profit or loss. 4.7.2 Liquidity risk Liquidity risk is the risk that the Group may not have sufficient cash balances and access to funding sources to meet its cash obligations. This risk arises through events such as large amounts falling due for payment, an interruption to cash inflows due to technology incidents or banking system interruption, or an interruption to funding sources and markets. The treasury policy approved by the Board has set an appropriate liquidity risk management framework for short, medium, and long-term funding requirements. The Group maintains a minimum daily liquidity ratio, which the Treasury function monitors and forecasts over a 12-month rolling period. The Group may decide to hold higher levels of liquidity from time totime in anticipation of expected requirements or events. To minimise refinancing risk, the Group maintains a diversity of funding sources and debt maturities. Upcoming maturities are included in the liquidity ratio calculation and must be covered by adequate liquidity to repay or refinance them. 1 The average rate includes foreign currency options measured at the floor rate.