Air New Zealand 2016 Annual Report Download - page 35

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Notes to the Financial Statements (continued)
As at 30 June 2016
33
AIR NEW ZEALAND GROUP
24. Financial Risk Management (continued)
FAIR VALUE HEDGES
Underlying currency movements on aircraft designated in a fair value hedge are included within ‘Property, plant and equipment’ on the Statement of
Financial Position. The hedging instrument is included within ‘Interest-bearing liabilities’.
2016
NZ$M
2015
NZ$M
Underlying United States Dollar aircraft fair values
Hedged by: United States Dollar interest-bearing liabilities
814
(814)
944
(944)
The effective portion of changes in the fair value of both the hedged item and the hedging instrument are offset within ‘Foreign exchange
gains’ within the Statement of Financial Performance, as set out below:
Changes in fair value*** on hedged item
Changes in fair value*** on hedging instrument
(26)
26
176
(176)
- -
*** The change in fair value is that used for the purpose of assessing hedge effectiveness. No ineffectiveness arose on fair value hedges during the
year (30 June 2015: Nil).
HEDGED, BUT NOT HEDGE ACCOUNTED
Where changes in the fair value of a derivative provide an offset to the underlying hedged item as it impacts earnings, hedge accounting is not
applied. The following items recognised within the line item shown in the Statement of Financial Position are denominated in a foreign currency and
give rise to foreign exchange risk.
2016
NZ$M
2015
NZ$M
Interest-bearing liabilities
Interest-bearing liabilities
Provisions
Interest-bearing assets
USD
EUR
USD
AUD
(497)
(125)
(281)
172
(556)
-
(242)
36
The following foreign currency derivatives were recognised within ‘Derivative financial instruments’ on the Statement of Financial Position as
at reporting date.
Hedging instruments
Derivative financial instruments
NZD
USD
AUD
EUR
Other
(681)
696
(172)
128
1
(662)
724
(37)
2
9
Not hedge accounted foreign currency derivatives (28) 36
The changes in fair value of hedged items and hedging instruments during the year offset within ‘Foreign exchange gains’ within the
Statement of Financial Performance, as set out below:
Foreign currency gains/(losses) on:
Interest-bearing liabilities
Provisions
Interest-bearing assets
Derivative financial instruments
22
8
(8)
(25)
(120)
(46)
(2)
165
(3) (3)
Forward points on non-hedge accounted foreign currency derivatives of $21 million were recognised in ‘Finance costs’ during the year
(30 June 2015: $23 million).
Sensitivity analysis
The sensitivity analyses which follow are hypothetical and should not be considered predictive of future performance. They only include financial
instruments (derivative and non-derivative) and do not include the future forecast hedged transactions or the underlying fair value of hedged
non-financial assets. As the sensitivities are only on financial instruments, the sensitivities ignore the offsetting impact on future forecast
transactions which many of the derivatives are hedging and the offsetting impact on underlying United States Dollar non-financial asset values,
which are hedged by debt instruments. Changes in fair value can generally not be extrapolated because the relationship of change in assumption
to change in fair value may not be linear. In addition, for the purposes of the below analyses, the effect of a variation in a particular assumption is
calculated independently of any change in another assumption. In reality, changes in one factor may contribute to changes in another, which may
magnify or counteract the sensitivities. Furthermore, sensitivities to specific events or circumstances will be counteracted as far as possible through
strategic management actions. The estimated fair values as disclosed should not be considered indicative of future earnings on these contracts.