30 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (a) Objectives for holding financial instruments The Group’s principal financial instruments, other than derivatives, comprise bank loans and overdrafts, finance leases and hire purchase contracts, trade  receivables, trade payables and cash and short-term deposits. The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group’s financial risk management  policy. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group also enters into derivative transactions,  including principally interest rate swaps and collars (caps and floors). The purpose is to manage the interest rate risks arising from the Group’s sources of  finance. It is, and has been throughout the period under review, the Group’s policy that no speculative trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, liquidity risk and credit risk, and  include the fair value movements from the financial instruments. The Group uses different methods to measure and manage different types of risk to  which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for  interest rate and foreign exchange. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk, and liquidity risk is  monitored through comparing projected debt levels against total committed facilities. The Board reviews and agrees policies for managing each of these  risks, which are summarised below. Details of significant accounting policies and methods adopted, including 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  instrument, are disclosed in Note 1. (b) Risk exposures and responses Cash flow interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with a variable interest  rate. The level of debt is disclosed in Note 16. The primary objectives of interest rate management for the Group are to ensure that: – interest expense does not adversely impact the Group’s ability to meet taxation, dividend and other operating obligations as they arise; – earnings are not subjected to wide fluctuations caused by fluctuating interest commitments; and – covenants agreed with bankers are not breached. Within the above constraints and targets, the Group’s objective in managing interest rate risk is to maintain the stability of interest rate expense whilst  ensuring that an appropriate level of flexibility exists to accommodate potential changes in funding requirements. At reporting date, the Group had the  following mix of financial assets and liabilities exposed to Australian and USA variable interest rate risk that were not designated in cash flow hedges: CONSOLIDATED 2014  $’000 2013  $’000 Financial assets: Cash and cash equivalents 130,382 146,909 Financial Liabilities: Secured and unsecured borrowings 238,368 197,487 Net exposure 107,986 50,578 The Group enters into interest rate swap and collar agreements (“interest rate derivatives”) that are used to convert the variable interest rates attached to  various of its specific facilities into fixed interest rates, or to limit interest rate exposure. The interest rate derivatives are entered into with the objective of  ensuring that earnings are not subject to wide fluctuations caused by fluctuating interest commitments and ensuring compliance with loan covenants.  Interest rate risk will not generally be hedged unless the underlying debt facility draw down exceeds A$20 million. For any debt exceeding this level, which  is outstanding for more than three months from the original drawdown date, interest rate exposure will be hedged for a minimum of 50% of the  outstanding debt balance for a minimum of 12 months or until termination of the loan, whichever is sooner. At reporting date, various entities within the Group had entered into interest rate derivatives covering debts totalling $242.5 million (2013: $221.0 million).  These interest rate derivatives covered approximately 50% (2013: 53%) of total borrowings of the Group as at reporting date. The majority (by value) of the  interest rate derivatives mature in 2014 to 2015 (2013: 2013 to 2015), and have been designated in hedging relationships under Australian Accounting  Standards. The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative  financing, alternative hedging positions and the mix of fixed and variable interest rates. Sensitivity analysis for interest rate risk exposures has been  calculated by estimating the impacts in value and timing based on financial models. The following sensitivity analysis is based on the interest rate risk  exposures in existence at reporting date. A sensitivity of 100 basis points has been selected as this is deemed to be reasonably possible given the current  level of both short term and long term Australian and USA interest rates. At 30 June 2014 and 30 June 2013, if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax profit and  equity would have been affected as follows: POST TAX PROFIT  HIGHER/(LOWER) EQUITY  HIGHER/(LOWER) Sensitivity analysis 2014  $’000 2013  $’000 2014  $’000 2013  $’000 CONSOLIDATED If interest rates were 100 basis points higher  with all other variables held constant (2,495) (1,444) 2,746 1,739 If interest rates were 100 basis points lower  with all other variables held constant 2,495 1,371 (2,775) (1,765) The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances. The movements in equity are due to an increase/ decrease in the fair value of derivative instruments designated as cash flow hedges. The sensitivities for each year are impacted by cash, debt and  derivative balances, as well as interest rates. Foreign currency risk The Group has transactional foreign currency exposures, which arise from sales or purchases by the relevant division in currencies other than the  division’s functional currency. In general, the Group requires all of its divisions to use forward currency contracts to eliminate the foreign currency  exposure on any individual transactions in excess of A$0.5 million, which are generally required to be taken out immediately when a firm commitment has  occurred. The forward currency contracts must be in the same currency as the hedged item, and it is the Group’s policy not to enter into forward contracts  until a firm commitment is in place. 67 ANNUAL REPORT 2014 CLOSE FILE X