Annual Report 2011 - Watercare

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Watercare Services Limited 2011 ANNUAL REPORT Notes to the financial statements (continued) for the year ended 30 June 2011 21. Financial Assets and Liabilities (continued) Liquidity risk Liquidity risk is the risk arising from the group not being able to meet its financial obligations. Ultimate responsibility for liquidity risk management rests with the board of directors, which has an appropriate liquidity risk management framework for the management of the group’s short, medium and long-term funding and liquidity management requirements. The group manages liquidity risk by maintaining adequate reserves and banking facilities, monitoring forecast and actual cash flows and by matching this with the maturity profiles of financial liabilities. The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of the medium-term notes, term loans, overdraft, revolving credit facility and commercial paper. The liquidity risk associated with the short-term commercial paper debt is mitigated by a standby facility of $200 million. The tables below detail the gross undiscounted cash flows of the financial liabilities on the basis of their earliest possible contractual maturity (including interest payments where applicable). Cash flows for financial liabilities without fixed amount or timing restrictions are based on the conditions existing at balance date. Gross contractual maturity analysis Group and Company 2011 Current Non-current gross nominal carrying 0-6 months 7-12 months 1-2 years 2-3 years More than 3 years cash outflow amount $000 $000 $000 $000 $000 $000 $000 Financial liabilities Bank overdraft 558 - - - - 558 558 Trade and other payables 16,157 - - - - 16,157 16,157 Accrued expenses* 63,031 - - - - 63,031 63,031 Forward exchange contracts 494 212 158 - - 864 864 Interest rate swaps 10,009 7,948 10,550 9,379 29,347 67,233 61,420 Borrowings 246,618 53,542 157,902 351,628 649,018 1,458,708 1,228,899 Total 336,867 61,702 168,610 361,007 678,365 1,606,551 1,370,929 * Excludes income received in advance of $13,995,878 (2010: nil) as it is not categorised as a financial liability. Current Non-current gross nominal carrying 0-6 months 7-12 months 1-2 years 2-3 years More than 3 years cash outflow amount $000 $000 $000 $000 $000 $000 $000 Company 2010 Financial liabilities Bank overdraft 446 - - - - 446 446 Trade and other payables 8,299 - - - - 8,299 8,299 Accrued expenses 33,017 - - - - 33,017 33,017 Forward exchange contracts 51 - - - - 51 51 Interest rate swaps 4,021 3,614 7,963 7,473 17,310 40,381 41,273 Borrowings 17,526 17,468 286,324 18,119 270,220 609,657 526,171 Total 63,360 21,082 294,287 25,592 287,530 691,851 609,257 The group monitors rolling forecasts of liquidity reserves on the basis of expected cash flow. At balance date the group had $318 million of unused credit facilities (commercial paper, overdraft facility and revolving credit facility) available for its immediate use (2010: $158.3 million). 2011 Financial Report PAGE 102 Capital management The capital structure of the group consists of equity attributable to the owners of the parent, comprising issued capital, reserves and retained earnings as disclosed on page 71 and debt including borrowings and covenants compliance as disclosed in note 20, page 95. The group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The objective of the group is to maintain an optimal capital structure to reduce the cost of capital. In ensuring that the group has sufficient solvency to satisfy all its operational needs, it closely monitors the ratio between the funds that it receives from operation and its finance costs. The group continues to focus on the maintenance of the long-term integrity of its assets whilst keeping the overall costs at minimum levels. There has been no change in the group’s overall strategy for capital management during the years ended 30 June 2011 and 30 June 2010. Return to Contents page
Watercare Services Limited 2011 ANNUAL REPORT Notes to the financial statements (continued) for the year ended 30 June 2011 22. Related Parties % Shares % Shares 2011 2010 Shareholders Auckland Council 100% 260,693,164 - - Auckland City Council - - 41.6% 108,551,635 Manukau City Council - - 25.1% 65,481,895 Waitakere City Council - - 16.7% 43,400,849 North Shore City Council - - 11.5% 29,988,909 Papakura District Council - - 3.7% 9,667,225 Rodney District Council - - 1.4% 3,602,651 100% 260,693,164 100% 260,693,164 Other related parties Metrowater Limited and Manukau Water Limited (subsidiaries of Auckland City Council and Manukau City Council respectively) were related parties until integration with the company on 1 November 2010. Metrowater Community Trust (formerly a Metrowater Limited subsidiary) and Auckland City Water Limited (dormant company) were related parties until 1 November 2010 after which they became subsidiaries of the company. Details of the integration of retail business are disclosed in note 11, page 86. Transactions with related parties On 1 November 2010, with the integration of local network operators, the group acquired debt as detailed in note 11, page 86 which it owes to its parent Auckland Council on the terms set out in note 20, page 95 and also has interest rate swap arrangements with Auckland Council (with a notional value of $155 million) with a fair value of $5.1 million as at balance date as included in note 21, page 97. In the prior year related party debt funding was limited to a loan from Manukau Water Limited totalling $10 million. The balances outstanding and transactions relating to the borrowings from Auckland Council during the year are as follows: group and Company Company 2011 2010 $000 $000 Loan from Auckland Council 543,258 - Interest payable on loan from Auckland Council 6,036 - Interest paid on loan from Auckland Council 15,688 - Loan repaid to Auckland Council 168,800 - Interest receivable on interest rate swaps with Auckland Council 305 - Loan from Manukau Water Limited - 10,000 Until integration on 1 November 2010 the group supplied bulk water and wastewater services predominantly to related parties in the Auckland region. After integration of the local network operators as detailed in note 11, page 86, the group provides retail water and wastewater services to its parent, Auckland Council and its controlled, jointly controlled and significantly influenced entities as well as to key management personnel of the company and its parent. These sales take place in the normal course of business. The group also enters into sales and purchases transactions with related parties in the normal course of business such as the payment of rates. These are not collectively significant. group and Company Company 2011 2010 $000 $000 Sales to related parties 136,058 173,610 Trade receivables – related parties 2,985 - Purchases from related parties 2,915 2,242 Trade payables – related parties 1,201 546 Payables accruals 7,894 - PAGE 103 2011 Financial Report Return to Contents page
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