61
2017 WEL Networks
|
Annual Report
wel.co.nz
The Group’s overall financial risk management objectives
are to ensure that the Group creates value and maximises
returns to its Shareholders as well as ensuring that
adequate financial resources are available for the
development of the Group’s businesses whilst managing its
financial risks. It is, and has been throughout the financial
year under review, the Group’s policy that no trading in
derivative financial instruments shall be undertaken. The
major areas of the financial risks faced by the Group
and the information on the management of the related
exposures are detailed below:
(a)
Market risk
(i)
Foreign exchange risk
Management has set up a policy to require the Group to
manage their foreign exchange risk against their functional
currency. The Group is required to hedge all transactions
greater than $250,000.
To manage their foreign exchange risk arising from future
commercial transactions and recognised assets and
liabilities, entities in the Group use forward contracts.
Foreign exchange risk arises when future commercial
transactions or recognised assets or liabilities are
denominated in a currency that is not the entity’s
functional currency.
At 31 March 2017 if the currency had weakened /
strengthened by 10% against the US dollar with all other
variables held constant, post-tax profit for the year would
have been nil (2016: $67,822).
(ii)
Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from short-term and long-
term borrowings. Borrowings issued at variable rates expose
the Group to cash flow interest rate risk which is partially
offset by cash held at variable rates. Borrowings issued at
fixed rates expose the Group to fair value interest rate risk.
Group policy is to maintain minimum and maximum fixed
interest rate cover of its borrowings in fixed rate instruments.
Based on the various scenarios, the Group manages its cash
flow interest rate risk by using floating to fixed interest rate
swaps. Such interest rate swaps have the economic effect
of converting borrowings from floating rates to fixed rates.
Generally, the Group raises long-term borrowings at floating
rates and swaps them into fixed rates that are lower than
those available if the Group borrowed at fixed rates directly.
Under the interest rate swaps, the Group agrees with other
parties to exchange, at specified intervals (primarily quarterly),
the difference between fixed contract rates and floating-
rate interest amounts calculated by reference to the agreed
notional amounts. The swaps are for the duration of the
borrowing term.
As at the reporting date, the Group had the following variable rate borrowings and interest rate swap
contracts outstanding:
31 March 2017
31 March 2016
Weighted
average
interest rate%
Balance
$’000
Weighted
average
interest rate %
Balance
$’000
Interest rate swaps (notional/principal amounts)
4.40% (200,000)
3.85%
(130,000)
Interest bearing liabilities
4.17%
381,707
4.86%
199,859
Loan from non-controlling interest
4.17%
63,336
4.86%
30,455
Net exposure to cash flow interest rate risk
245,043
100,314
(iii)
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk,
foreign exchange risk and other price risk.
WEL NETWORKS LIMITED
Notes to the financial statements
For the year-ended 31 March 2017
(continued)
