ANNUAL REPORT 2021-22

58 25. FINANCIAL INSTRUMENTS (a) ANNUAL REPORT 2021-22 ANNUAL REPORT 2021-22 The following table shows the Corporation's debt and interest obligations to the Northern Territory Government: FINANCIAL RISK MANAGEMENT OBJECTIVES The Corporation's activities expose it to a variety of financial risks including market risk, foreign currency risk, price risk, interest rate risk, credit risk and liquidity risk. Risk management is carried out by the senior executives under policies approved by the board of directors. These policies include identification and analysis of the risk exposure of the Corporation and appropriate procedures, controls and risk limits. The main purpose of these financial instruments is to raise finance for the Corporation's operations. The Corporation has various other financial instruments such as trade receivables and trade payables. It is the Corporation's policy that no trading in financial instruments shall be undertaken. The main risks arising from the Corporation's financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The board of directors review and agree policies for managing each of these risks and they are summarised below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in Note 1 to the financial statements. Remaining loan term 0-1 year 1 to 2 years 2 to 5 years Over 5 years 2022 2021 Fixed rate loans Average interest Fixed rate rate loans Average interest rate $'000 % $'000 % 34,000 3.64 37,000 3.55 196,000 3.15 34,000 159,000 3.64 3.13 230,000 3.39 230,000 * See also Note 17. The maturity analysis of loans from Northern Territory Treasury Corporation is based on its current loans agreement. 3.31 (b) MARKET RISK Cash flow sensitivity analysis (c) (d) Recent market reforms have exposed the Corporation to competition and potential loss of market share. The Corporation is focused on developing performance and cost efficiencies across its operations in order to mitigate the business impact of increasing competition. EFFICIENCY RISK The Corporation is exposed to the risk of running its plant inefficiently to manage electricity network system integrity issues. This includes risks such as inefficient or uneconomic system dispatch, additional spinning reserve, and running inefficient plant to provide inertia to the system. FOREIGN CURRENCY RISK The Corporation undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. The Corporation manages foreign currency exposure on a case by case basis, with future foreign currency commitments also considering potential exchange rate volatility. The Corporation has the ability to enter forward exchange rate contracts, or alternatively purchase foreign currency at current rates to meet future commitments. The carrying amount of the Corporation's foreign currency denominated monetary liabilities at the reporting date was $0.0 million (2021: $0.0 million) Foreign currency contracts - cash flow hedges In order to protect against exchange rate movements and to manage the cost of construction, the Corporation at times enters into forward exchange contracts to purchase US Dollars and GBP. These contracts hedge highly probable forecast payments timed to mature, including rollover strategy, when payments are scheduled to be made. At the reporting date, there are no current hedging contracts. A reasonably possible change of 100 basis points (BP) in interest rates at the reporting date would have increased/(decreased) equity and pre-tax profit and loss by the amount shown below. This analysis assumes that all other variables remain constant. Effect in $'000 30 June 2022 30 June 2021 (g) CREDIT RISK Profit or loss 100 bp increase 100 bp decrease Equity net of tax 100 bp increase 100 bp decrease -2,300 2,300 -1,610 1,610 -2,300 2,300 -1,610 1,610 Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Corporation. The maximum exposure to credit risk at the reporting date to recognise financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Corporation does not hold any collateral. New and existing customers are evaluated for credit risk, with the Corporation actively monitoring the appropriateness of credit limits, and clear accountability for customer relationships established. Ageing analysis is regularly undertaken for all customers to understand and mitigate credit risk. (h) LIQUIDITY RISK (e) PRICE RISK (f) The Corporation manages price risk by aligning the terms of the wholesale electricity sales agreements with its market participants and fuel purchase agreements with its suppliers. As the individual agreements are considered to be commercial-in-confidence, a sensitivity on these risks is not able to be presented. INTEREST RATE RISK The Corporation's exposure to the risk of changes in market interest rates relates to the long-term debt obligations to the Northern Territory Government. The loans are interest only based on fixed interest rates and the Corporation is exposed to interest rate risk when there are interest rate resets only upon expiry and refinancing of the fixed rate terms. Liquidity risk is the risk that the Corporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial assets. The Corporation's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Corporation's objective is to maintain cash to meet its liquidity requirements for 30 day periods. This objective was met for the period. The Corporation's existing cash resources include an approval for a $20 million overdraft, the discretion to roll over loans on maturity, and trade receivables exceed the current cash outflow requirements. Cash flows from trade and other receivables are all contractually due within six months. 59 59

View entire presentation