Air New Zealand 2013 Annual Report Download - page 34

Download and view the complete annual report

Please find page 34 of the 2013 Air New Zealand annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

Air New Zealand Annual Financial Results 
32
. FINANCIAL RISK MANAGEMENT CONTINUED
SIGNIFICANT FOREIGN EXCHANGE RATES USED AT BALANCE DATE FOR ONE NEW ZEALAND DOLLAR ARE:
 
Australian Dollar 0.8400 0.7840
European Community Euro 0.5980 0.6330
Japanese Yen 76.80 62.60
United Kingdom Pound 0.5110 0.5080
United States Dollar 0.7800 0.7875
Fuel price risk
Air New Zealand has entered into fuel swap and option agreements to reduce the impact of price changes on fuel costs in accordance with
policy approved by the Board of Directors. Upli in the first three months is hedged between 50% and 80% with the volume falling to zero
in the twelh month. The intrinsic value component of these fuel derivatives is designated as a cash flow hedge. All other components are
marked to market through earnings, as are any short-dated outright derivatives. As at 30 June 2013, the Group had hedged 3.6 million barrels
(30 June 2012: 2.2 million barrels) with a fair value liability of $1 million (30 June 2012: $3 million asset). The contracts mature within 11 months
(30 June 2012: 6 months).
Fuel price sensitivity on financial instruments
The sensitivity of the fair value of these derivatives as at reporting date to a reasonably possible change in the price per barrel of crude oil
is shown below. This analysis assumes that all other variables, including the refining margin, remain constant and the respective impacts
on profit before taxation and equity are dictated by the proportion of intrinsic/time value of the options at reporting date as well as the
proportion of effective/ineffective hedges. In practice, these elements would vary independently. This analysis does not include the
future forecast hedged fuel transactions.
The sensitivity has been changed to USD20 from USD35 per barrel to reflect the comparative stabilisation of fuel markets relative to
the prior year. As at 30 June 2012, there was no sensitivity impact on the cash flow hedge reserve as all fuel hedge relationships were
ineffective as at that date.
GROUP AND COMPANY
Price movement per barrel:

M
 USD 

M
 USD 

M
 USD 

M
 USD 
On profit before taxation 33 (34) 32 (7)
On cash flow hedge reserve (within equity) 37 (31) - -
Interest rate risk
Interest rate risk is the risk of loss to Air New Zealand arising from adverse fluctuations in interest rates.
Air New Zealand has exposure to interest rate risk as a result of the long-term borrowing activities which are used to fund ongoing
activities. It is the Group’s policy to ensure the interest rate exposure is maintained to minimise the impact of changes in interest rates on
its net floating rate long-term borrowings. The Group’s policy is to fix between 70% to 100% of its exposure to interest rates, including
fixed interest operating leases, in the next 12 months. Interest rate swaps are used to achieve an appropriate mix of fixed and floating rate
exposure if the volume of fixed rate loans or fixed rate operating leases is insufficient.
In the year to 30 June 2013, there were no interest rate derivatives in place, nor any impact on earnings (30 June 2012: Nil).
Interest rate sensitivity on financial instruments
Earnings are sensitive to changes in interest rates on the floating rate element of borrowings and finance lease obligations and the fair
value of interest rate swaps. Their sensitivity to a reasonably possible change in interest rates with all other variables held constant, is set
out below:
Interest rate change:

M
 bp*

M
 bp*

M
 bp*

M
 bp*
On profit before taxation
Group (4) 4 (5) 5
Company (3) 3 (3) 3
* bp = basis points
The above assumes that the amount and mix of fixed and floating rate debt, including finance lease obligations, remains unchanged from
that in place at reporting date, and that the change in interest rates is effective from the beginning of the year. In reality, the fixed/floating
rate mix will fluctuate over the year and interest rates will change continually.
Notes to the Financial Statements (Continued)
As at 30 June 2013