Air New Zealand 2014 Annual Report Download - page 35

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AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2014 33
18. FINANCIAL RISK MANAGEMENT (CONTINUED)
The Group monitors capital on the basis of gearing ratios. These ratios are calculated as net debt (both including and excluding
capitalised operating leases) over net debt plus equity. Net debt is calculated as total borrowings, bonds and finance lease obligations
(including net open derivatives on these instruments) less cash and cash equivalents, non interest-bearing assets and interest-bearing
assets. Capital comprises all components of equity. These ratios and their calculation are disclosed in the Five Year Statistical Review.
Fair value hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as
follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets and liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
Fair value estimation
The fair value of the investment in quoted equity instruments was determined by reference to quoted market prices in an active market.
This equates to “Level 1” of the fair value hierarchy defined within NZ IFRS 13 - Fair Value Measurement.
The fair value of derivative financial instruments is based on published market prices for similar assets or liabilities at balance date
(“Level 2” of the fair value hierarchy). The fair value of foreign currency forward contracts is determined using forward exchange rates at
reporting date. The fair value of fuel swap and option agreements is determined using forward fuel prices at reporting date. The fair value
of equity derivatives is determined using quoted equity prices and exchange rates at reporting date. Fair values are discounted back to
present value.
The fair value of interest-bearing liabilities for disclosure purposes is calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest for similar liabilities at reporting date.
The fair value of all other financial instruments approximates the carrying value.
The following table presents the Group’s assets and liabilities measured and recognised at fair value on a recurring basis:
LEVEL
GROUP
FAIR VALUE/
CARRYING
VALUE
2014
$M
GROUP
FAIR VALUE/
CARRYING
VALUE
2013
$M
COMPANY
FAIR VALUE/
CARRYING
VALUE
2014
$M
COMPANY
FAIR VALUE/
CARRYING
VALUE
2013
$M
Investment in quoted equity instruments 1
422 261 - -
Derivative financial assets
Foreign currency
Fuel
2
2
5
25
93
5
5
25
93
5
Total derivative financial assets 30 98 30 98
Derivative financial liabilities
Foreign currency
Fuel
Equity
2
2
2
(58)
-
-
(2)
(6)
(5)
(58)
-
-
(2)
(6)
-
Total derivative financial liabilities (58) (13) (58) (8)
Interest-bearing liabilities are initially stated at fair value, net of transactions costs incurred. They are subsequently stated at amortised cost
using the effective interest rate method, where appropriate. The fair value of interest-bearing liabilities as at balance date and as compared
to their carrying value is presented below.
LEVEL
GROUP
2014
$M
GROUP
2013
$M
COMPANY
2014
$M
COMPANY
2013
$M
Interest-bearing liabilities
Carrying value
Fair value
2
1,733
1,671
1,629
1,560
867
849
1,008
970
19. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
For financial instruments subject to enforceable master netting arrangements, each agreement allows the parties to elect net settlement
of the relevant financial assets and liabilities. In the absence of such election, settlement occurs on a gross basis, however each party will
have the option to settle on a net basis in the event of default of the other party.
The following financial assets and financial liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2014