Investor Presentaiton
148
Notes to the Consolidated Financial Statements
4.6
Borrowings (continued)
4.7
Financial risk management
Capital structure,
financing and risk management
4
149
Annual Report 2023
Woolworths Group
NON-CASH MOVEMENTS
CASH MOVEMENTS
EFFECT OF
MOVEMENTS
2022
Current, unsecured
IN FOREIGN
CLOSING
OPENING
EXCHANGE
BALANCE
$M
RATES¹
$M
OTHER²
$M
PROCEEDS
REPAYMENTS
BALANCE
$M
$M
$M
This section provides a summary of the Group's exposure to market, liquidity,
and credit risks, along with the Group's policies and strategies in place to mitigate
these risks.
The Group's Treasury function is responsible for managing its liquidity, funding, and capital requirements, and identifying
and managing financial risks relating to the Group's operations. These financial risks include:
1
Short-term money market loans
44
336
(44)
336
.
Market risk (refer to Note 4.7.1);
Bank loans
75
18
(75)
18
•
Liquidity risk (refer to Note 4.7.2); and
Total current borrowings
119
354
(119)
354
Credit risk (refer to Note 4.7.3).
Non-current, unsecured
highlights
Performance
Bank loans
1,350
89
579
(850)
1,168
Securities
1,416
(41)
(164)
1,580
2,791
Unamortised borrowing costs
(13)
(8)
Total non-current borrowings
2,753
(41)
(83)
2,159
(850)
(21)
3,938
Total borrowings
2,872
(41)
(83)
2,513
(969)
4,292
1 The $41 million effect of movements in foreign exchange rates represents the change in the carrying values of the European Medium Term
Notes which are hedged items in a cash flow hedge relationship. Refer to Note 4.7.1 for further details.
These risks affect the fair value measurements applied by the Group, which are detailed in Note 4.7.4.
The Group adheres to a treasury policy approved by the Board, which has written principles relating to liquidity risk, interest
rate risk, foreign exchange risk, credit risk, and the use of derivatives for hedging purposes. The Treasury function reports
on its compliance with the policy to the Board.
The Group uses various types of derivatives to hedge its exposures to variability in interest rates and foreign exchange rates.
The Group does not enter into or trade financial instruments, including derivatives, for speculative purposes.
2
review
Business
2 Other includes $164 million relating to the Medium Term Notes (Green Bond) and several Domestic Notes, which are hedged items ina fair
value hedge relationship and are subject to changes in the carrying amount due to fair value adjustments attached to each arrangement.
4.7.1
Market risk
(1)
INTEREST RATE RISK
Significant Accounting Policies
Borrowings
Borrowings are recognised initially at fair value less attributable transaction costs and are
subsequently stated at amortised cost. Any difference between the cost and the redemption value
is recognised in the Consolidated Statement of Profit or Loss over the period of the borrowings.
Financial reporting impacts of sustainability-related matters
Included in the Group's borrowings as at 25 June 2023 are $1.5 billion of Sustainability Linked
Bonds (SLBs), which have a direct link to the Group's commitment to reducing emissions.
The SLB structure embeds a penalty (via a prospective margin increase of 0.25% per annum) into
the terms of the notes. This penalty applies if, at the respective testing dates of the notes, the
Group's scope 1 and 2 emissions are not aligned with the forecast trajectory of the Group's 2030
emissions reduction targets.
The Group has committed to reduce scope 1 and 2 emissions from its own operations by 63% by
2030 compared to a 2015 baseline. As at 25 June 2023, the Group also had a Green Bond on issue
that is certified by the Climate Bonds Initiative. The proceeds of the Green Bond have been fully
allocated to eligible assets as per the Climate Bonds Standards, being low emissions supermarkets,
solar energy installations, LED lighting upgrades and heating, ventilation, and air conditioning
optimisation projects.
Interest rate risk is the risk that a change in interest rates may negatively impact the Group's cash flow or profitability
because the Group's borrowings and associated hedging arrangements reset directly in accordance with interest rate
benchmarks or reset regularly to current rates influenced by interest rate benchmarks. The risk is managed by maintaining
an appropriate mix between floating and fixed rate borrowings and through the use of approved derivatives to hedge
the risk.
(11)
FOREIGN EXCHANGE RISK
Foreign exchange risk is the risk that a change in foreign exchange rates may negatively impact the Group's cash flow
or profitability because the Group has an exposure to a foreign currency or has foreign currency denominated obligations.
The exposure to purchases denominated in foreign currencies is primarily managed through forward exchange contracts
and foreign currency options. These have been designated as cash flow hedges and the Group has established a 100%
hedge relationship against the identified exposure.
To hedge the risk of adverse movements in foreign exchange rates in relation to borrowings denominated in foreign
currency, the Group enters into cross currency swaps under which it agrees to exchange specified principal and interest
foreign currency amounts at an agreed future date at a specified exchange rate. The European Medium Term Notes are 100%
hedged in this way.
Foreign currency exposures arising on translation of net investments in foreign subsidiaries are predominantly unhedged.
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