61 l BRADKEN LIMITED ANNUAL REPORT 2014
Notes to the consolidated financial statements
30 June 2014
(continued)
13 Derivative financial instruments
2014
2013
$'000
$'000
Current assets
-
12,897
Total current derivative financial instrument assets
-
12,897
Current liabilities
1,825
2,310
984
-
Total current derivative financial instrument liabilities
2,809
2,310
(a)
(i)
Interest rate swap and interest rate cap contracts - cash flow hedges
At balance date, the notional principal amounts and periods of expiry of the interest rate swap and cap contracts are as follows:
2014
2013
$'000
$'000
Interest rate swap contracts
1 year or less
-
30,000
2 - 3 years
40,000
-
3 - 4 years
-
40,000
40,000
70,000
(ii) Forward exchange contracts
(b)
(c)
Further information about the fair value of the Group's derivatives is provided in note 3.
Offsetting financial assets and liabilities
Bradken presents derivative assets and derivative liabilities on a gross basis. Certain derivative assets and liabilities are subject
to enforcable master netting arrangements with individual counterparties if they were subject to default. As at 30 June 2014, if
these netting arrangements were to be applied to the derivative portfolio, derivative assets are reduced by $0.58m (30 June
2013: $4.4m) and derivative liabilities are reduced by $0.58m (30 June 2013: $4.4m).
It is the policy of the Group to enter into forward foreign exchange contracts to cover all foreign currency exposures greater than
$100,000 AUD.
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations
in interest and foreign exchange rates in accordance with the Group's financial risk management policies (refer to note 3).
Forward foreign exchange contracts -
cash flow hedges ((a)(ii))
Forward foreign exchange contracts ((a)(ii))
Interest rate swap and cap contracts -
cash flow hedges ((a)(i))
Swaps and caps currently in place cover approximately 14% of bank loans (2013: 14%). The average fixed interest for the
swaps and caps is 4.88% (2013: 4.88%).
The contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the
dates on which interest is payable on the underlying debt. The contracts are settled on a net basis.
At balance date for the Group these contracts were net liabilities with fair value of $1,825,000 (2013: $2,310,000 liability). In the
year ended 30 June 2014 there was a gain from the change in fair value of $485,000 (2013: $1,099,000 gain).
Instruments used by the Group
Further information about the Group's exposure to credit risk, foreign exchange risk and interest rate risk is provided in note 3.
At balance date these contracts were net liabilities of $984,000 (2013: $12,897,000 asset). The Group has classified these
hedging instruments to be effective hedges.
In the year ended 30 June 2014 there was a loss from the change in fair value of the asset of $13,881,000 (2013: gain of
$13,138,000)
The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent
that the hedge is effective, and re-classified into profit and loss when the hedged interest expense is recognised. The ineffective
portion is recognised in the income statement immediately.
Risk exposures and fair values
Bank loans of the Group had an average variable interest rate of 3.64% at 30 June 2014 (2013: 4.40%). It is policy to protect
part of the loans from exposure to increasing interest rates. Accordingly, the Group has entered into interest rate swap
contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates, and interest rate caps
which provide protection over an agreed interest rate level.
Page 61
Bradken Limited
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
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