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27 FINANCIAL INSTRUMENTS
27.1 Financial risk factors
Exposure to credit, market (currency, price and interest) and liquidity risks arise in the normal course of the Trust’s business. The
Trust has various financial instruments with off balance sheet risk.
Senior management are required to identify and report major risks affecting the business and develop strategies to mitigate
these risks. The board reviews and approves overall risk management strategies covering specific areas.
(a) Credit risk
Credit risk is the risk that a third party will default on its obligations to the Trust, causing the Trust to incur a loss. The Trust does
not have any significant concentrations of credit risk, other than the relativity settlement receivable and the Co-management
settlement receivable expected from the Crown. The maximum exposure to credit risk at reporting date is the carrying amount
of the financial assets as shown in the statement of financial position. The Trust does not require any collateral or security to
support financial instruments as it only deposits with, or lends to, banks and other financial institutions with high credit ratings
except for funds lent to a related party and an external entity for which the Trust has appropriate security and guarantees. The
Trust further minimises credit exposure by limiting the amount of surplus funds placed with any one financial institution. The
cash and cash equivalents of $181m (2015: $177m) are held with bank and financial institution counterparties, which are rated
AA- to A+, based on Standards and Poors ratings. The Trust does not expect non-performance of any obligations at balance
date. There are no material financial assets held by the Trust at balance date which are past due but not impaired.
(b) Market risk
(i) Currency
The Trust has no material exposure to currency risk at balance date.
(ii) Price risk
The Trust is exposed to equity securities price risk. This arises from investments held by the Trust that are classified at fair value
through profit or loss.
Sensitivity analysis
The table below summarises the impact of increases/(decreases) of the New Zealand equity index on the Trust and the Trust’s
profit and equity for the year. The analysis is based on the assumption that should the equity indexes increase/(decrease) by 10
percent (2015: 10 percent) with all other variables held constant and all the Trust’s equity instruments move according to the
historical correlation with the index.
Consolidated
Impact on profit
Impact on equity
2016
$'000
2015
$'000
2016
$'000
2015
$'000
Financial assets at fair value through surplus or deficit
2,670
2,712
2,670
2,712
Financial assets at fair value through surplus or deficit
(2,670)
(2,712)
(2,670)
(2,712)
Profit for the year would increase/(decrease) as a result of gains/(losses) on shares in listed companies classified as at fair value
through surplus or deficit. Equity would further increase/(decrease) as a result of gains/(losses) on shares in listed companies
classified as at fair value through surplus or deficit.
Price risk in relation to Aotearoa Fisheries Limited (AFL) income shares
A movement in the enterprise value of 1 percent would result in a gain/(loss) in the Groups equity interest in AFL income shares
of $0.1m (2015: $0.1m) and a movement in the multiple of 1.0 would result in a gain/(loss) in the Groups equity interest in AFL
income shares of $1.4m (2015: $1.4m).
The price risk assessment in 2016 for other unlisted securities was immaterial in terms of the possible impact on profit or loss or
total equity, it had therefore not been included in the sensitivity analysis.