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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 2016
Non-derivative financial liabilities
Bank loans - principal
(272,300)
(272,300)
-
(81,400)
(190,900)
-
Bank loans - future interest
-
(26,970)
(6,733)
(8,268)
(11,969)
-
Corporate bonds
(200,033)
(227,000)
(9,000)
(9,000)
(209,000)
-
Payables and deferred income
(18,206)
(18,206)
(18,206)
-
-
-
Derivative financial liabilities
Interest rate swaps
(9,978)
(9,759)
(3,290)
(3,170)
(3,131)
(168)
(500,517)
(554,235)
(37,229)
(101,838)
(415,000)
(168)
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)
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 2016 the fixed rates varied from 2.39 per cent to 5.54 per
cent (2015: 3.10 per cent to 5.70 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 2016, the Trust’s hedging cover (interest rate swaps and fixed
rate corporate bonds) was 79 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 as existing
interest rate swaps mature.
The Trust’s exposure to interest rate risk for classes of financial assets
and financial liabilities is set out as follows:
Carrying amount
June 2016
$000
June 2015
$000
Variable rate instruments
Cash and short-term deposits
14,029
32,445
Bank debt facilities
(272,300)
(285,700)
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. 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 below 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 same comparative analysis has been applied to the 2015
financial year.
BWP Trust Annual Report 2016
41
Financial Report