Port Nelson Annual Report 2007 (pdf)

N O T E S T O T H E A C C O U N T S
N O T E 1 3 : F I N A N C I A L I N S T R U M E N T S
Financial Risk Management Objectives
Port Nelson does not enter into or trade financial instruments, including derivative financial instruments for speculative purposes. Treasury
functions are governed by a Treasury Policy approved by the Board of Directors. Approved instruments include:
• Forward rate agreements
• Interest rate swaps
• Options on a swap
• Interest rate options
• Interest rate collars
• Spot and forward foreign exchange
Fixed rate hedging parameters are as follows:
Term Minimum Fixed Rate Amount Maximum Fixed Rate Amount
Less than 1 year 0% 100%
1 year to 4 years 30% 70%
5 years to 10 years 0% 50%
Maximum Credit Risk Exposure
Port Nelson is exposed to credit risk from the possibility of counter parties failing to perform their obligations.
Credit risk exposure on financial assets other than cash at bank and at call has been recognised in the balance sheet net of any provision for
doubtful debts. Principally any risk is in respect of cash and bank, and accounts receivable.
The major components of debtor exposure are to shipping companies and forestry exporters. Terms of trade are either payment on the 20 th of
the month following or 7 working days. The majority of debtors are major international companies with extensive histories of payment. There
are no major concentrations of credit risk with respect to accounts receivable and any single debtor.
Maximum exposures to credit risk at balance date are: 2007 2006
$000 $000
Bank 269 585
Short Term Deposits @ 7.25% 1,901 1,899
Receivables 3,518 3,011
The above maximum exposures are net of any recognised provision for losses on these financial instruments. No collateral is held on the above
accounts.
The Directors do not consider there is any significant exposure to interest rate risk on its investments.
Interest Rate Risk
Under interest rate swap contracts, Port Nelson agrees to exchange the difference between fixed and floating rate interest amounts calculated
on agreed, notional principal amounts thus allowing Port Nelson to mitigate the risk of changing interest rates on debt held.
Swaps expiring within 12 months are treated as core debt and will be replaced with another approved instrument.
The following table details the notional principle amounts and remaining terms of interest rate swap contracts outstanding as at reporting date.
Notional Amount Fair Value Interest 0 to 1 1 to 2 2 to 3 3 to 4 9 to 10
($000’s) gain/(loss) rate %* year years years years years
2 0 0 7 ( A T B A L A N C E D A T E )
$12,000 Swap 96 7.49 12,000 - - - -
$3,000 Swap 70 6.98 - 3,000 - - -
$4,000 Swap 178 6.75 - - - 4,000 -
$5,000 Swap 256 6.55 - - - 5,000 -
$3,000 Swap 367 6.49 - - - - 3,000
$27,000 967 - 12,000 3,000 - 9,000 3,000
2 0 0 7 ( P O S T B A L A N C E D A T E )
$7,000 Swap 17 7.91 - 7,000 - - -
$9,000 Swap 306 6.19 - - - - 9,000
$16,000 323 - - 7,000 - - 9,000
2 0 0 7 T O T A L 1,290 - 12,000 10,000 - 9,000 12,000
2 0 0 6 T O T A L 78 - 6,000 - - 4,000 5,000
3 4
*Interest rate is exclusive of margin and line of credit fee.