40 Financial instruments
a) Financial risk management objectives and policies
Financial instruments held by the PTA are cash and cash equivalents, foreign exchange forward contracts, borrowings, receivables and payables. The PTA has limited exposure to financial risks. The PTA’s overall risk management program focuses on managing the risks identified below.
Credit risk
The PTA trades only with recognised, creditworthy third parties. The PTA has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. In addition, receivable balances are monitored on an ongoing basis with the result that the PTA’s exposure to bad debt is minimal. There are no significant concentrations of credit risk.
Liquidity risk
The PTA has appropriate procedures to manage cash flows including drawdowns of appropriations by monitoring forecast cash flows to ensure that sufficient funds are available to meet its commitments.
The PTA has a short-term liquidity facility of $200 million on which it can draw down to fund temporary cash shortfall. The PTA is currently in a net current liability position but can convert their short term borrowings at any time as approval from the Western Australian Treasury Corporation (WATC) has been obtained. As such, this does not pose a liquidity risk to the PTA.
Cash flow interest rate risk
The PTA’s exposure to market risk for changes in interest relates primarily to the long-term debt obligations. The PTA’s borrowings are all obtained through Western Australian Treasury Corporation (WATC) and are at fixed rates with varying maturities. The risk is managed by WATC through portfolio diversification and variation in maturity dates. The PTA earns interest on the daily balance of its bank account.
Foreign exchange risks
The PTA is exposed to foreign exchange risk arising from currency exposure to the Euro and Swiss francs.
Forward contracts transacted with WATC are used to manage these risks. The purpose of the foreign currency contracts is to protect against the risk that eventual dollar outflows in respect of purchases in foreign currency may be adversely affected by changes in exchange rates.
b) Categories of financial instruments
In addition to cash, the carrying amounts of each of the following categories of financial assets and financial liabilities at balance sheet date are as follows:
| 2008 $000 |
2007 $000 |
|
|---|---|---|
Financial Assets |
||
| Cash and cash equivalents | 54,093 | 52,182 |
| Restricted cash and cash equivalents | 509 | 638 |
| Amounts receivable for services | 430,814 | 311,338 |
| Receivables (i) | 12,906 | 7,451 |
| Derivatives | 5 | 0 |
Financial Liabilities |
||
| Payables | 89,113 | 64,652 |
| Other current liabilities | 594 | 727 |
| WATC loans | 899,993 | 854,291 |
| Commonwealth loans | 3,492 | 3,874 |
| Derivatives | 0 | 1,294 |
- The amount of receivables excludes GST recoverable from ATO (statutory receivable).
c) Financial instrument disclosures
Credit risk, liquidity risk, interest rate risk and foreign exchange risk exposures
The following table details the exposure to liquidity risk and interest rate risk as at balance sheet date. The PTA’s maximum exposure to credit risk at the balance sheet date is the carrying amount of the financial assets as shown on the following table. The table is based on information provided to senior management of the PTA. The contractual maturity amounts in the table are representative of the undiscounted amounts at the balance sheet date. An adjustment for discounting has been made where material.
The PTA does not hold any collateral as security or other credit enhancements relating to the financial assets it holds.
The PTA does not hold any financial assets that had to have their terms renegotiated that would have otherwise resulted in them being past due or impaired.
| Fixed interest rate maturity | ||||||||
| Notes | Weighted average effective interest rate % | Variable interest rate (i) | 1 or less than 1 year | 1 to 5 years | more than 5 years | Non-interest bearing | Total | |
|---|---|---|---|---|---|---|---|---|
| 2008 | $000 | $000 | $000 | $000 | $000 | $000 | ||
Financial Assets |
||||||||
| Cash and cash equivalents | 36 | 6.87 | 54,093 | 0 | 0 | 0 | 0 | 54,093 |
| Restricted cash and cash equivalents | 36 | 6.87 | 509 | 0 | 0 | 0 | 0 | 509 |
| Receivables (ii) | 23 | 0 | 0 | 0 | 0 | 12,906 | 12,906 | |
| Amounts receivable for services | 24 | 0 | 0 | 0 | 0 | 430,814 | 430,814 | |
| Derivatives | 33 | 0 | 0 | 0 | 0 | 5 | 5 | |
| 54,602 | 0 | 0 | 0 | 443,725 | 498,327 | |||
Financial Liabilities |
||||||||
| Payables | 29 | 0 | 0 | 0 | 0 | 89,113 | 89,113 | |
| Other current liabilities | 32 | 0 | 0 | 0 | 0 | 594 | 594 | |
| WATC Loans | 30 | 6.68 | 0 | 260,589 | 348,945 | 290,459 | 0 | 899,993 |
| Commonwealth Loans | 30 | 5.93 | 0 | 384 | 1,506 | 1,602 | 0 | 3,492 |
| 0 | 260,973 | 350,451 | 292,061 | 89,707 | 993,192 | |||
| Fixed interest rate maturity | ||||||||
| Notes | Weighted average effective interest rate % | Variable interest rate (i) | 1 or less than 1 year | 1 to 5 years | more than 5 years | Non-interest bearing | Total | |
|---|---|---|---|---|---|---|---|---|
| 2007 | $000 | $000 | $000 | $000 | $000 | $000 | ||
Financial Assets |
||||||||
| Cash and cash equivalents | 36 | 5.98 | 52,182 | 0 | 0 | 0 | 0 | 52,182 |
| Restricted cash and cash equivalents | 36 | 5.98 | 638 | 0 | 0 | 0 | 0 | 638 |
| Receivables (ii) | 23 | 0 | 0 | 0 | 0 | 7,451 | 7,451 | |
| Amounts receivable for services | 24 | 0 | 0 | 0 | 0 | 311,338 | 311,338 | |
| 52,820 | 0 | 0 | 0 | 318,789 | 371,609 | |||
Financial Liabilities |
||||||||
| Payables | 29 | 0 | 0 | 0 | 0 | 64,652 | 64,652 | |
| Other current liabilities | 32 | 0 | 0 | 0 | 0 | 727 | 727 | |
| Derivatives | 33 | 0 | 0 | 0 | 0 | 1,294 | 1,294 | |
| WATC Loans | 30 | 6.39 | 0 | 222,440 | 374,783 | 257,068 | 0 | 854,291 |
| Commonwealth Loans | 30 | 5.93 | 0 | 383 | 1,525 | 1,967 | 0 | 3,875 |
| 0 | 222,823 | 376,308 | 259,035 | 66,673 | 924,839 | |||
- Variable interest rates represent the most recently determined rate applicable to the instrument at balance sheet date.
- The amount of receivables excludes GST recoverable from ATO (statutory receivable).
The amounts disclosed are the contractual undiscounted cash flows of each class of financial liabilities.
Interest rate sensitivity analysis
The following table represents a summary of the interest rate sensitivity of the PTA's financial assets and liabilities at the balance sheet date on the surplus for the period and equity for a 1% change in interest rates. Considering the current situation, it is highly unlikely that the interest rate will move by more than 1%. It is assumed that the change in interest rate is held constant throughout the reporting period.
| Carrying amount | -1% change | +1% change | |||
| Profit | Equity | Profit | Equity | ||
| 2008 | $000 | $000 | $000 | $000 | $000 |
Financial Assets |
|||||
| Cash and cash equivalents | 54,093 | (541) | (541) | 541 | 541 |
| Restricted cash and cash equivalents | 509 | (5) | (5) | 5 | 5 |
| Total increase/ (decrease) | (546) | (546) | 546 | 546 | |
| Carrying amount | -1% change | +1% change | |||
| Profit | Equity | Profit | Equity | ||
| 2007 | $000 | $000 | $000 | $000 | $000 |
Financial Assets |
|||||
| Cash and cash equivalents | 52,182 | (522) | (522) | 522 | 522 |
| Restricted cash and cash equivalents | 638 | (6) | (6) | 6 | 6 |
| Total increase/ (decrease) | (528) | (528) | 528 | 528 | |
Currency sensitivity analysis
The PTA has an exposure to changes in foreign exchange rates resulting from the bus replacement program. Payment for bus chassis is to be made in Euros. PTA uses forward exchange contracts in Euros (EUR) to hedge the risk. The derivatives asset is the net fair value of the contract and it comprises of assets of $14,343k and liabilities of $14,338k.
The following table represents a summary of the currency rate sensitivity of PTA's financial assets and liabilities at balance sheet date on the surplus for the period and on equity for a +/- 1% change in spot rate.
| Carrying amount | -1% change | +1% change | |||
| Profit | Equity | Profit | Equity | ||
| 2008 | $000 | $000 | $000 | $000 | $000 |
Financial Assets |
|||||
| Derivatives | 5 | 161 | 161 | (136) | (136) |
| Total increase/ (decrease) | 161 | 161 | (136) | (136) | |
| Carrying amount | -1% change | +1% change | |||
| Profit | Equity | Profit | Equity | ||
| 2007 | $000 | $000 | $000 | $000 | $000 |
Financial Assets |
|||||
| Derivatives | 1,294 | 284 | 284 | (279) | (279) |
| Total increase/ (decrease) | 284 | 284 | (279) | (279) | |
Fair Values
All financial assets and liabilities recognised in the balance sheet, whether they are carried at cost or fair value, are recognised at amounts that represent a reasonable approximation of fair value unless otherwise stated in the applicable notes.