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13. FINANCIAL RISK MANAGEMENT
The Trust holds financial instruments for the following purposes:
Financing:
to raise funds for the Trust’s operations. The principal
types of instruments are term advances (“bank loans”), bank bills and
corporate bonds.
Operational:
the Trust’s activities generate financial instruments
including cash, trade receivables and trade payables.
Risk management:
to reduce risks arising from the financial
instruments described above, including interest rate swaps.
The Trust’s holding of these instruments exposes it to risk. The Board
of directors of the responsible entity has overall responsibility for the
establishment and oversight of the Trust’s policies for managing these
risks, which are outlined below:
>> credit risk (note 13(a));
>> liquidity risk (note 13(b)); and
>> interest rate risk (note 13(c)).
These risks affect the fair value measurement applied by the Trust,
which is discussed further in note 13(e).
a) Credit risk
Credit risk is the risk of financial loss to the Trust if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Trust’s receivables
from customers, cash, and payments due to the Trust under
interest rate swaps.
Receivables
The credit risk associated with 93.5 per cent (2015: 93.7 per cent)
of the rental income is with three tenants.
June 2016
June 2015
Bunnings Group Limited
1
92.5
92.3
Officeworks Superstores Pty Ltd
1
0.6
0.9
J Blackwood and Son Pty Limited
1
0.4
0.5
1
Wholly owned subsidiaries of Wesfarmers limited
Bunnings Group Limited, J Blackwood and Son Pty Limited,
Officeworks Superstores Pty Ltd and Wesfarmers Limited are
currently subject to a Deed of Cross Guarantee under which they
covenant with a trustee for the benefit of each creditor that they
guarantee to each creditor payment in full of any debt in the event
of any entity that is included in the Deed of Cross Guarantee being
wound up. Wesfarmers Limited has been assigned a credit rating of
A-(stable)/A2 by Standard & Poor’s (A3 (Stable)/P2 – Moody’s).
Cash
The Trust limits its exposure to credit risk associated with its cash by
maintaining limited cash balances and having cash deposited with
reputable, major financial institutions subject to regulation in Australia,
which are rated A- or higher by Standard and Poor’s.
Derivative financial instruments
The Trust limits its exposure to credit risk associated with future
payments from its interest rate swaps by contracting with reputable
major financial institutions subject to regulation in Australia, which are
rated A- or higher by Standard and Poor’s.
Exposure to credit risk
The carrying amount of the Trust’s financial assets represents the
maximum credit exposure. The Trust’s maximum exposure to credit
risk at the reporting date was:
Carrying amount
Note
June 2016
$000
June 2015
$000
Cash and short-term
deposits
3
14,029
32,445
Receivables
Wesfarmers Limited
subsidiaries
4
227
842
Other tenants
4
409
193
636
1,035
Total exposure
14,665
33,480
b) Liquidity risk
Liquidity risk is the risk that the Trust will not be able to meet its financial
obligations as they fall due.
To assist in minimising the risk of having inadequate funding for the
Trust’s operations, the Trust’s objective is to maintain a balance between
continuity of funding and flexibility through the use of bank loans and
corporate bonds with different tenures, with the Trust aiming to spread
maturities to avoid excessive refinancing in any period. In respect to the
Trust’s bank loans, whilst these have fixed maturity dates, the terms of
these facilities allow for the maturity period to be extended by a further
year each year subject to the amended terms and conditions being
accepted by both parties. The Trust also regularly updates and reviews
its cash flow forecasts to assist in managing its liquidity.
Maturity of financial liabilities
The following are the contractual maturities of financial liabilities
(including estimated interest payments) and receipts or payments of
interest rate swaps. The amounts disclosed in the table below are the
contractual undiscounted cash flows and hence will not necessarily
reconcile with the amount disclosed in the statement of financial position.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
BWP Trust Annual Report 2016
40
Financial Report