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138 Qantas Annual Report 2008
Notes to the Financial Statements
for the year ended 30 June 2008
Qantas Group Qantas
Net profi tEquity Net profi tEquity
100bps increase in interest rates 2008
$M
2007
$M
2008
$M
2007
$M
2008
$M
2007
$M
2008
$M
2007
$M
Variable rate instruments (24.2) (25.6) ––(24.2) (25.4) ––
Derivative and fi xed rate debt in a fair value hedge relationship 24.9 30.1 9.0 7.7 24.9 30.1 9.0 7.7
100bps decrease in interest rates
Variable rate instruments 24.2 25.6 ––24.2 25.4 ––
Derivative and fi xed rate debt in a fair value hedge relationship (24.6) (31.6) (8.8) (8.1) (24.6) (31.6) (8.8) (8.1)
(ii) Foreign exchange risk
Foreign exchange risk is the risk that the fair value of future cash fl ows of a fi nancial instrument will fl uctuate because of changes in foreign
exchange rates. The source and nature of this risk arises from operations, capital expenditures and translation risks.
Cross-currency swaps are used to convert long-term foreign currency borrowings to currencies in which the Qantas Group has forecast suffi cient
surplus net revenue to meet the principal and interest obligations under the swaps. These foreign currency borrowings have a maturity of between
one and 12 years. To the extent a foreign exchange gain or loss is incurred, and the cash fl ow hedge is deemed effective, this is deferred until the
net revenue is realised. Forward foreign exchange contracts and currency options are used to hedge a portion of remaining net foreign currency
revenue or expenditure in accordance with Qantas Group policy. Net foreign currency revenue and expenditure out to fi ve years may be hedged
within specifi c parameters, with any hedging outside these parameters requiring approval by the Board. Purchases and disposals of property, plant
and equipment denominated in a foreign currency are hedged using a combination of forward foreign exchange contracts and currency options
at the date a fi rm commitment is entered into to buy or sell currency unless otherwise approved by the Board.
Unrealised gains/losses – long-term revenue hedges
Where long-term borrowings are held in foreign currencies in which the Qantas Group derives surplus net revenue, offsetting forward foreign
exchange contracts have been used to match the timing of cash fl ows arising under the borrowings with the expected revenue surpluses used to
hedge the borrowings. To the extent a gain or loss is incurred, and the cash fl ow hedge is deemed effective, this is deferred in the hedge reserve until
the net revenue is realised. As at 30 June 2008, 67.6 per cent (2007: 52.1 per cent) of forecast operational and capital expenditure foreign exchange
exposures less than one year and 20.4 per cent (2007: 10.3 per cent) of exposures greater than one year but less than fi ve years have been hedged.
As at 30 June 2008, total unrealised exchange gains on hedges of net revenue designated to service long-term debt were $424.8 million
(2007: $410.7 million gain).
For the year ended 30 June 2008, other fi nancial assets and liabilities include derivative fi nancial instruments used to hedge foreign currency,
including hedging of future capital and operating expenditure payments, totalling $615.0 million (net liability) (2007: $331.9 million (net liability)).
These are recognised at fair value in accordance with AASB 139.
33. Financial Risk Management continued
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