REPORTING CONTEXT ABOUT US OUR OPERATING CONTEXT OUR PERFORMANCE OUR LEADERSHIP GOVERNANCE OUR FINANCIAL STATEMENTS SHAREHOLDERS' CORNER 3. FINANCIAL RISK MANAGEMENT A Management Risk Committee, composed of the senior managers of the Company and chaired by the Chief Executive Officer is in place, operating under the terms of reference approved by the Audit and Risk Committee. Risk in the widest sense includes market risk, credit risk, liquidity risk, operation risk and commercial risk. The most significant risks faced by the Group include those pertaining to the economic environment, the supply chain, regulations, skills and people, technology as well as foreign currency and interest rates. These risks are included in the risk management program. Sub-committees have been set up and chaired by the respective senior managers sitting on the Management Risk Committee to make detailed identification, assessment, measurement and finally to develop and implement risk response strategies. 3.1 Financial risk factors and risk management policies A description of the significant risk factors is given below together with the risk management policies applicable. The Group’s activities expose it to a variety of financial risks, including: • Market risk (including currency risk, price risk and cash flow and fair value interest rate risk); • Credit risk; and • Liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in note 2 to the financial statements. (a) Market risk (i) Currency risk management The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Euro (EUR) and US Dollar (USD). Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. The Company has the assistance of the Group Finance Committee to obtain the best rates on the market for the settlement of foreign currency payments. Foreign currency sensitivity analysis The Group The following table details the Group’s sensitivity to a 5% change in the Mauritian Rupee against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 5% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the Mauritian Rupee strengthens 5% against the relevant currencies. There would be an equal and opposite impact on the profit and other equity where the Mauritian Rupee weakens 5% against the relevant currencies, and the balances below would be negative. Increase in profit and other equity 2022 MUR ‘000 2021 MUR ‘000 USD 1 285 2 703 EUR 11 377 24 872 The Company The following table details the Company’s sensitivity to a 5% change in the Mauritian Rupee against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 5% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the Mauritian Rupee strengthens 5% against the relevant currencies. There would be an equal and opposite impact on the profit and other equity where the Mauritian Rupee weakens 5% against the relevant currencies, and the balances below would be negative. Increase in profit and other equity 2022 MUR ‘000 2021 MUR ‘000 USD 2 046 3 053 EUR 3 407 9 231 (ii) Price risk The Group and the Company are exposed to equity securities price risk because of investments held by the Group and the Company classified on the statement of financial position as financial assets at fair value through other comprehensive income. No sensitivity analysis is performed for FVTOCI as the impact is immaterial. For investment in subsidiaries classified as FVTOCI, the sensitivity analysis is performed in note 3.2. Equity investments are held for strategic rather than for trading purposes. The Group and the Company do not actively trade these investments. (iii) Cash flow and fair value interest rate risk management The Group is exposed to interest rate risk as entities in the Group borrows at both fixed and variable rates. In respect of the latter, it is exposed to risk associated with the effect of fluctuations in the prevailing level of market interest rates on its financial position and cash flows. The risk is managed by maintaining an appropriate mix between fixed and floating interest rates on borrowings. Rupee-denominated borrowings At 30 June 2022, if interest rates on borrowings had been 50 basis points higher/lower, with all other variables held constant, profit for the year would have been lower/higher as shown in the table below, mainly as a result of higher/lower interest expense on floating rate borrowings: THE GROUP THE COMPANY 2022 MUR ‘000 2021 MUR ‘000 2022 MUR ‘000 2021 MUR ‘000 Effect on profit +50 basis points – Decrease in profit (788) (963)) (788) (963) -50 basis points – Increase in profit 788 963 788 963 Other currencies – denominated borrowings The Group have borrowings amounting to MUR 270.3m (2021: MUR 355.6m) and the Company MUR 159.6m (2021: MUR 218.0m) denominated in EUR. Interest rates are disclosed in note 15(c). NOTES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2022 149 148 Phoenix Beverages Limited Integrated Report 2022 Phoenix Beverages Limited Integrated Report 2022
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