BWP TRUST ANNUAL REPORT 2015
45
13. FINANCIAL RISK MANAGEMENT (CONTINUED)
Carrying
amount
$000
Contractual
cash flows
$000
1 year
$000
1-2 years
$000
2-5 years
$000
More than
5 years
$000
30 June 2015
Non-derivative financial liabilities
Bank loans - principal
(285,700)
(285,700)
-
-
(193,500)
(92,200)
Bank loans - future interest
-
(42,439)
(9,289)
(9,204)
(23,602)
(344)
Corporate bonds
(199,701)
(236,000)
(9,000)
(9,000)
(218,000)
-
Payables and deferred income
(27,363)
(27,363)
(27,363)
-
-
-
Derivative financial liabilities
Interest rate swaps
(10,943)
(11,400)
(4,295)
(3,520)
(3,389)
(196)
(523,707)
(602,902)
(49,947)
(21,724)
(438,491)
(92,740)
30 June 2014
Non-derivative financial liabilities
Bank loans - principal
(248,938)
(249,200)
-
-
(249,200)
-
Bank loans - future interest
-
(31,919)
(9,998)
(10,484)
(11,437)
Corporate bonds
(199,394)
(245,000)
(9,000)
(9,000)
(227,000)
-
Payables and deferred income
(15,647)
(15,647)
(15,647)
-
-
-
Derivative financial liabilities
Interest rate swaps
(12,047)
(12,621)
(4,406)
(3,924)
(4,122)
(169)
(476,026)
(554,387)
(39,051)
(23,408)
(491,759)
(169)
c) Interest rate risk
Interest rate risk is the risk that the Trust’s finances will be adversely
affected by fluctuations in interest rates. To help reduce this risk in
relation to bank loans, the Trust has employed the use of interest
rate swaps whereby the Trust agrees with various banks to exchange
at specified intervals, the difference between fixed rate and floating
rate interest amounts calculated by reference to an agreed notional
principal amount. Any amounts paid or received relating to interest rate
swaps are recognised as adjustments to interest expense over the life
of each contract swap, thereby effectively fixing the interest rate on the
underlying obligations.
At 30 June 2015 the fixed rates varied from 3.10 per cent to 5.70
per cent (2014: 3.10 per cent to 5.77 per cent) and the floating rates
were at bank bill rates plus a bank margin.
The Trust has a policy of hedging the majority of its borrowings against
interest rate movements to ensure stability of distributions. At 30 June
2015, the Trust’s hedging cover (interest rate swaps and fixed rate
corporate bonds) was 78 per cent of borrowings. This level is currently
above the Board’s preferred 50 per cent to 75 per cent range due to
the corporate bond issuance in late May 2014. Hedging levels are
expected to return within the Board’s preferred range in the coming
years as the Trust continues to grow.
The Trust’s exposure to interest rate risk for classes of financial assets
and financial liabilities is set out as follows:
Carrying amount
June 2015
$000
June 2014
$000
Variable rate instruments
Cash and short-term deposits
32,445
12,045
Bank debt facilities
(285,700)
(248,938)
The Trust’s sensitivity to interest rate movements
Fair value sensitivity analysis for fixed rate instruments
The Trust does not account for any fixed-rate financial assets or
financial liabilities at fair value through the profit or loss, and the Trust
does not designate any interest rate swaps as hedging instruments
under a fair value hedging model. Therefore, a change in interest rates
at the reporting date would not affect profit or loss.
Cash flow sensitivity analysis for variable rate instruments
The analysis on the following page considers the impact on equity and
net profit or loss due to a reasonably possible increase or decrease in
interest rates. This analysis assumes that all other variables remain
constant. The analysis is performed on the same basis for 2014.
