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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.
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed contract and floating rate interest
amounts calculated by reference to the agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of
changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures on the issued variable rate debt
held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows at reporting
date and the credit risk inherent in the contract, and are disclosed below. The average interest rate is based on the outstanding
balances at the start of the financial year.
Sensitivity analysis
As at 31 March 2015, if the 90 day bank bill rate had been 50 basis points higher or lower, with all other variables held constant,
the Group’s profit/(loss) for the year and the equity would have been $481,640 (2014: $506,974) higher or lower. This movement
is attributable to an increase or decrease in the interest expense on floating rate loans and in the interest income from deposits.
The sensitivity is slightly lower in 2015 due to a higher level of debt fixed with swap instruments proportional to total bank debt.
(iii) Price risk
The Group is exposed to equity securities price risk. This arises from investments held by the Group that are classified at fair value
through profit or loss. The Group is not exposed to commodity price risk.
Sensitivity analysis
The table below summarises the impact of increases/(decreases) of the New Zealand equity index on the Group and the Group’s
profit and equity for the year. The analysis is based on the assumption that should the equity indexes increase/(decrease) by
10% (2014: 10%) with all other variables held constant and all the Group’s equity instruments move according to the historical
correlation with the index.
Consolidated
Impact on profit
Impact on equity
2015
$’000
2014
$’000
2015
$’000
2014
$’000
Financial assets at fair value through profit or loss
2,712
196
2,712
196
Financial assets at fair value through profit or loss
(2,712)
(196)
(2,712)
(196)
Profit for the year would increase/(decrease) as a result of gains/(losses) on shares in listed companies classified as at fair value
through profit or loss. Equity would further increase/(decrease) as a result of gains/(losses) on shares in listed companies classified
as at fair value through profit or loss.
Price risk in relation to Aotearoa Fisheries Limited (AFL) income shares
A movement in the enterprise value of 1% would result in a gain/(loss) in the Groups equity interest in AFL income shares of
$0.1m (2014: $0.1m) and a movement in the multiple of 1.0 would result in a gain/(loss) in the Groups equity interest in AFL
income shares of $1.4m (2014: $1.4m).
The price risk assessment in 2014 for other unlisted securities was immaterial in terms of the possible impact on profit or loss or
total equity, it had therefore not been included in the sensitivity analysis.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty raising liquid funds to meet commitments as they fall due. The
Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
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waikato-tainui
annual report 2015