Annual Report 2014–15


Note 37: Financial instruments



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Note 37: Financial instruments

  1. Objectives and policies

The Council's principal financial instruments comprise cash assets, term deposits, receivables (excluding statutory receivables), payables (excluding statutory payables) and bank borrowings. 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 instrument is disclosed in Note 1 of the financial statements. Risk management is carried out by senior management under policies approved by the Council. These policies include identification and analysis of the risk exposure to Council and appropriate procedures, controls and risk minimisation.

Financial Assets


Financial Instruments

Note

Accounting Policy

Terms and Conditions

Cash and cash equivalents

16

Cash on hand, cash at bank and money market call account are valued at face value

Consolidated: On call deposits returned a floating interest rate of 2.05% (2.58% in 2013-14)

Council: On call deposits returned a floating interest rate of 2.05% (2.55% in 2013-14)

Short term deposits

16

Interest is recognised as it accrues

Investments are valued at cost

Investments are held to maximise interest returns of surplus cash


Consolidated: On call deposits returned a floating interest rate of 2.70% (3.58% in 2013-14)

Council: On call deposits returned a floating interest rate of 2.35% (2.73% in 2013-14)

Sundry debtors

17

Receivables are carried at nominal amounts due less provision for doubtful debts. A provision for doubtful debts is recognised when collection in full is no longer probable. Collectability of overdue accounts is assessed on an ongoing basis.

Trade debtors are unsecured. Credit terms are based on 30 days from date of invoice.

Financial Liabilities


Financial Instruments

Note

Accounting Policy

Terms and Conditions

Investments

21

Investment for the Council include all wholly owned subsidiaries, wholly controlled trust of the Council and associated entities

Investments in the consolidated entity includes interests in other entities and associated entities



Investments in other entities are valued at historical cost

Trade and other payables

25

Liabilities are recognised for amounts to be paid in the future for goods and services provided to Council as at balance date whether or not invoices have been received


Trade creditors are unsecured, not subject to interest charges and are normally settled within 30 days from date of invoice.

Borrowings

14

Borrowings are carried at their principal amounts, which represent the present value of future cash flows associated with the servicing of debt. Interest is recognised as an expense as it is incurred

Consolidated:

Bank overdraft is secured with a 1st ranking fixed and floating charge

Bill acceptance/discount facility is secured with a 1st ranking fixed and floating charge

The weighted average interest rate for borrowings is 2.53% (2.67% in 2013-14)

Council: Council has no borrowings

No defaults or breaches of any loan/debt facility arrangements involving Council or its consolidated group occurred during the financial year ended 30 June 2015.


  1. Market risk


Market risk is the risk that the fair value or future cash flows of our financial instruments will fluctuate because of changes in market prices. The Council's exposures to market risk is primarily through interest rate risk with only insignificant exposure to other price risks and no exposure to foreign currency risk.

Interest rate risk

Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Council does not hold any interest bearing financial instruments that are measured at fair value, and therefore has no exposure to fair value interest rate risk. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Council has minimal exposure to cash flow interest rate risk through its cash and deposits that are at floating rate.

Investment of surplus funds is made with approved financial institutions under the Local Government Act 1989. Council manages interest rate risk by adopting an investment policy that ensures:


    • diversification of investment product

    • monitoring of return on investment

    • benchmarking of returns and comparison with budget.

There has been no significant change in the Council's exposure, or its objectives, policies and processes for managing interest rate risk or the methods used to measure this risk from the previous reporting period.

Interest rate movements have not been sufficiently significant during the year to have an impact on the Council's year end result.

Council's interest rate liability risk is limited to our subsidiary company’s Citywide Service Solutions Pty Ltd borrowings. Council has no direct borrowings.

Council's subsidiary company Citywide Service Solutions Pty Ltd has a borrowing and overdraft facility which has been arranged with a major Australian bank. Council's subsidiary company manages the interest rate risk by:



    • an ongoing review or borrowing levels

    • having a limit imposed on the maximum borrowing amount allowed by Council.
  1. Credit risk


Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause us to make a financial loss. Council has exposure to credit risk on some financial assets included in our balance sheet. To help manage this risk:

    • Council has a policy for establishing credit limits for the entities we deal with

    • Council may require collateral, where appropriate

    • Council only invests surplus funds with financial institutions which have a recognised credit rating specified in our investment policy.

Receivables consist of a large number of customers, spread across the ratepayer, business and government sectors. Credit risk associated with the Council's financial assets is minimal because the main debtor is secured by a charge over the rateable property.

There are no material financial assets which are individually determined to be impaired.

Council may also be subject to credit risk for transactions which are not included in the balance sheet, such as when Council provides a guarantee for another party. Details of Council’s contingent liabilities are disclosed in note 35.

The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. Council does not hold any collateral.

  1. Liquidity risk


Liquidity risk includes the risk that, as a result of our operational liquidity requirements or Council will not have sufficient funds to settle a transaction when required, Council will be forced to sell a financial asset at below value or may be unable to settle or recover a financial asset.

To help reduce these risks Council:



    • have a liquidity policy which targets a minimum and average level of cash and cash equivalents to be maintained

    • have a liquidity portfolio structure that requires surplus funds to be invested within various bands of liquid instruments

    • monitor budget to actual performance on a regular basis

    • Council has no direct borrowing.

The Council's maximum exposure to liquidity risk is the carrying amounts of financial liabilities as disclosed in the face of the balance sheet.

There has been no significant change in Council's exposure, or its objectives, policies and processes for managing liquidity risk or the methods used to measure this risk from the previous reporting period.

With the exception of borrowings, all financial liabilities are expected to be settled within normal terms of trade. Details of the maturity profile for borrowings are disclosed at Note 28.

Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.

The Consolidated Entity’s exposure to liquidity risk is deemed insignificant given our high levels of cash and cash equivalents, Citywide Service Solutions Pty Ltd borrowing levels and our current assessment of risk.

With respect to borrowings at Citywide Service Solutions Pty Ltd the following should be noted. The bank overdraft facility is a secured facility. In February 2012 the Bill Acceptance and Discount Facility was increased. This facility is also a secured facility. There is a 1st ranking fixed and floating charge. The bank facilities may be drawn at any time and may be terminated by the bank subject to default under the loan agreement. Subject to the continuance of satisfactory covenant achievement, the bank facilities may be drawn at any time. The facilities expire on the 2 June 2017.

The table below lists the contractual maturities for financial liabilities. These amounts represent undiscounted gross payments including both principal and interest amounts.


Consolidated

2015


6 mths or less

$'000


6-12

months


$'000

1-2

years


$'000

2-5

years


$'000

>5

years


$'000

Contracted

Cash Flow

$'000


Carrying

Amount


$'000

Financial assets

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Cash and cash equivalents

118,472

500

0

0

0

118,972


118,972

Trade and other receivables

48,997

0

0

0

0

48,997

48,997

Other financial assets

4,800

500

0

0

0

5,300

5,300

Total Financial assets

172,269

1,000

0

0

0

173,269

173,269

Financial liabilities

N/A

N/A

N/A

N/A

N/A

N/A

N/A


Trade and other payables

74,730

0

2,445

0

0

77,175

77,175

Trust funds and deposits

6,780

109

1,637

0

0

8,526

8,526

Interest-bearing loans and borrowings

0

0

0

0

0

0

0

Total Financial liabilities

81,510

109

4,082

0

0

85,701


85,701



Council

2015


6 mths

or less


$'000

6-12

months


$'000

1-2

years


$'000

2-5

years


$'000

>5

years


$'000

Contracted

Cash Flow

$'000


Carrying

Amount


$'000

Financial assets

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Cash and cash equivalents

106,519

0

0

0

0

106,519


106,519

Trade and other receivables

25,550

0

0

0

0

25,550

25,550

Other financial assets

0

2,000

0

0

0

2,000

2,000

Total Financial assets

132,069

2,000

0

0

0

134,069

134,069

Financial liabilities

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Trade and other payables


53,308

0

0

0

0

53,308

53,308

Trust funds and deposits

6,111

0

0

0

0

6,111

6,111

Interest-bearing loans and borrowings

0

0

0

0

0

0

0

Total Financial Liabilities

59,419

0

0

0

0

59,419

59,419

Consolidated

2014


6 mths

or less


$'000

6-12

months


$'000

1-2

years


$'000

2-5

years


$'000

>5

years


$'000

Contracted

Cash Flow

$'000


Carrying

Amount


$'000

Financial assets

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Cash and cash equivalents

88,524

500

0

0

0

89,024

89,024

Trade and other receivables

57,695

0

0


0

0

57,695

57,695

Other financial assets

21,200

500

0

0

0

21,700

21,700

Total Financial assets

167,419

1,000

0

0

0

168,419

168,419

Financial liabilities

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Trade and other payables

89,840

0

0

0

0

89,840


89,840

Trust funds and deposits

5,351

97

1,609

0

0

7,057

7,057

Interest-bearing loans and borrowings

0

0

0

6,000

0

6,000

6,000

Total Financial Liabilities

95,191

97

1,609

6,000

0

102,897

102,897


Council

2014


6 mths

or less


$'000

6-12

months


$'000

1-2

years


$'000

2-5

years


$'000

>5

years


$'000

Contracted

Cash Flow

$'000


Carrying

Amount


$'000

Financial assets

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Cash and cash equivalents

81,339

0

0

0

0

81,339

81,339

Trade and other receivables

26,626

0

0

0

0

26,626


26,626

Other financial assets

8,000

10,000

0

0

0

18,000

18,000

Total Financial assets

115,965

10,000

0

0

0

125,965

125,965

Financial liabilities

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Trade and other payables

61,065

0

0

0

0

61,065

61,065


Trust funds and deposits

4,901

0

0

0

0

4,901

4,901

Interest-bearing loans and borrowings

0

0

0

0

0

0

0

Total Financial Liabilities

65,966

0

0

0

0

65,966

65,966
  1. Fair value


Unless otherwise stated, the carrying amount of financial instruments reflect their fair value.

Council's financial assets and liabilities are not valued in accordance with the fair value hierarchy, Council's financial assets and liabilities are measured at amortised cost.


  1. Sensitivity disclosure analysis

Taking into account past performance, future expectations, economic forecasts, and management's knowledge and experience of the financial markets, Council believes the movements 'reasonably possible' over the next 12 months are a parallel shift of + 1.0 per cent and -0.5 per cent in market interest rates (AUD) from year-end rates of 2.05 per cent.

These movements will not have a material impact on the valuation of Council's financial assets and liabilities, nor will they have a material impact on the results of Council's operations.

The table below discloses the impact on net operating result and equity for each category of financial instruments held by the Council at year end, if the above movements were to occur.


Item

2015

$’000


Interest rate risk

-0.50%


-50 basis points

Profit


$’000

Interest rate risk

-0.50%


-50 basis points

Equity


$’000

Interest rate risk

+1.00%


+100 basis points

Profit


$’000

Interest rate risk

+1.00%


+100 basis points

Equity


$’000

Consolidated

N/A

N/A

N/A

N/A

N/A

Financial assets

N/A

N/A

N/A

N/A

N/A


Cash and cash equivalents

118,972

(595)

(595)

1,190

1,190

Financial liabilities

N/A

N/A

N/A

N/A

N/A

Interest-bearing loans and borrowings

0

0

0

0

0

Council

N/A

N/A

N/A

N/A

N/A

Financial assets

N/A

N/A

N/A

N/A

N/A

Cash and cash equivalents

106,519


(533)

(533)

1,065

1,065

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