Endeavour Energy Annual Performance Report - Parliament of New ...
Endeavour Energy Annual Performance Report - Parliament of New ...
Endeavour Energy Annual Performance Report - Parliament of New ...
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09<br />
Financial<br />
statements<br />
Notes to the Financial Statements<br />
For the year ended 30 June 2011<br />
21 Financial Instruments continued<br />
Exposure to interest rate risk arises primarily through the Corporation’s interest bearing liabilities. This risk is<br />
minimised by undertaking mainly fixed rate borrowings, primarily with NSW T-Corp. The Corporation does not<br />
account for any fixed rate financial instruments at fair value through pr<strong>of</strong>it or loss or as available for sale. These are<br />
accounted for at amortised cost. The only impact on pr<strong>of</strong>it or loss would be the change in interest rates on floating<br />
rate borrowings. A reasonably possible change <strong>of</strong> +/- 1% is used, consistent with current trends in interest rates.<br />
This analysis assumes that all other variables remain constant. The basis will be reviewed annually and amended<br />
where there is a structural change in the level <strong>of</strong> interest rate volatility. The Corporation’s exposure to interest rate<br />
risk is set out below.<br />
-1% +1%<br />
Carrying<br />
Amount<br />
$’000<br />
Pr<strong>of</strong>it<br />
or loss<br />
$’000<br />
Equity<br />
$’000<br />
Pr<strong>of</strong>it<br />
or loss<br />
$’000<br />
Equity<br />
$’000<br />
2011<br />
Financial assets<br />
Cash and cash equivalents 3,288 (33) – 33 –<br />
Financial liabilities<br />
Borrowings 2,617,484 3,563 – (3,563) –<br />
Treasury derivatives – interest rate swaps – (500) (2,690) 305 2,781<br />
2010<br />
Financial assets<br />
Cash and cash equivalents 30,355 (304) – 304 –<br />
Treasury derivatives – interest rate swaps 298 (200) – 200 –<br />
Financial liabilities<br />
Borrowings 2,414,298 1,950 – (1,950) –<br />
Treasury derivatives – interest rate swaps 222 800 – (800) –<br />
The Corporation’s sensitivity to interest rates has decreased during the current year mainly due to a decrease in<br />
the amount <strong>of</strong> variable rate borrowings and decreases in interest rate swap contracts.<br />
(e) Currency risk<br />
Currency risk is the risk that the fair value or future cash flows <strong>of</strong> a financial instrument will fluctuate because <strong>of</strong> changes<br />
in foreign exchange rates. <strong>Endeavour</strong> <strong>Energy</strong>’s exposure to foreign currency risk is immaterial. The Corporation<br />
limits currency risk by entering into foreign currency options and forward foreign exchange contracts. As the foreign<br />
currency risk is immaterial in terms <strong>of</strong> a possible impact on pr<strong>of</strong>it and loss or total equity, a sensitivity analysis has not<br />
been completed.<br />
(f) Liquidity risk<br />
Liquidity risk refers to the risk <strong>of</strong> difficulty in ensuring the availability <strong>of</strong> sufficient funds to meet obligations associated<br />
with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk is managed by the<br />
Treasury function. Treasury maintains a balance between continuity <strong>of</strong> funding and flexibility through the use <strong>of</strong> bank<br />
overdrafts and debt. The Corporation’s funding requirements and strategy is reviewed annually and monitored on an<br />
ongoing basis. The Corporation manages debt via a term to maturity approach. At 30 June 2011 the Corporation’s<br />
term to maturity duration was within the policy limit approved by the Board. During the current and prior year no<br />
assets have been pledged as collateral. Liquidity risk management with regard to commodity derivatives is managed<br />
by ensuring the Corporation has sufficient funds available to settle its commitments to counterparties. <strong>Endeavour</strong><br />
<strong>Energy</strong> transferred all risks and rewards associated with retained electricity derivatives to Origin <strong>Energy</strong>, as part <strong>of</strong> the<br />
sale <strong>of</strong> the Retail business, through a Pass Through Agreement. Accordingly, liquidity risk associated with electricity<br />
derivatives for 2011 is disclosed as nil.<br />
84