2022 Corporate Report

Corporate Report for the year ended 30 June 2022

Introduction and overview

Business performance

Governance and risk

Directors’ report

Remuneration report

Financial statements

Sustainability supplement

Security holder information

Section B: Notes to the Group financial statements for the year ended 30 June 2022

Section B: Notes to the Group financial statements for the year ended 30 June 2022

B15 Derivatives and financial risk management (continued) Hedging strategy and instruments used by the Group

The Group uses derivative financial instruments in the normal course of business in order to hedge exposures to fluctuations in interest rates and foreign exchange rates in accordance with the Group’s financial risk management policies. The Group’s policies allow derivative transactions to be undertaken for the purpose of reducing risk and do not permit speculative trading. The instruments used by the Group are as follows: Interest rate swap contracts—cash flow hedges The Group uses interest rate swap contracts to manage the Group’s exposure to variable interest rates related to borrowings. Interest rate swap contracts currently in place cover 100% (2021: 100%) of the variable debt held by the Group (excluding working capital facilities). Forward exchange contracts—cash flow hedges The Group currently uses forward exchange contracts to protect against exchange rate movements between the AUD and foreign currencies. The Group has hedged a portion of its USD and CAD interest commitments. The fair value of forward exchange contracts held is not material to the Group in the current year. Cross-currency interest rate swap contracts—cash flow hedges The Group has entered into cross-currency interest rate swap contracts to remove the risk of unfavourable exchange rate movements on borrowings held in foreign currencies. Under these contracts, the Group receives foreign currency at fixed rates and pays AUD at a fixed rate. Offsetting financial assets and financial liabilities Currently there is no right or basis to present any financial assets or financial liabilities on a net basis, and as such no financial assets or financial liabilities have been presented on a net basis in the Group's balance sheet at the end of the financial year. Hedge of net investment in foreign entity Transurban's investment in its US and Canadian based assets (TC in the US, A25 in Canada) act as a natural hedge against the exposure to foreign currency movements for a portion of the Group’s USD denominated borrowings and CAD denominated borrowings. Exchange differences arising on the revaluation of these borrowings are recognised in the profit and loss in the separate financial statements of the relevant subsidiaries. In the Group financial statements these exchange differences are recognised in the foreign currency translation reserve in equity and will be transferred to the profit and loss when the Group disposes of its interest in either the US or Canadian based assets. As at 30 June 2022, the Group has deferred $83 million in losses (2021: $15 million in losses) related to exchange differences on the revaluation of financial instruments and $19 million in gains (2021: $12 million in gains) related to exchange differences on the net assets of its US and Canadian assets. Power Purchase Agreements As at 30 June 2022, the Group has entered into four Power Purchase Agreements (PPAs); three Financial PPAs and one Retail PPA. The three Financial PPAs are operational with the Retail PPA set to commence in January 2024. The Financial PPAs with the Sapphire Wind Farm and Bango Wind Farm are both for 9 years and 9 months, support the NSW and WestConnex operations (excluding WestConnex M4-M5 Link) and expire in December 2030. The Bango Wind Farm became operational on 8 June 2022 and on 2 June 2022, the Bango Wind Farm PPA was amended and expanded to include NCX and M5 West operations from July 2022 onwards. The Financial PPA with the Coopers Gap Wind Farm is for 4 years and 6 months, became operational on 1 January 2022 and supports Transurban Queensland's operations expiring in June 2026. The Financial PPAs operate as a contract for difference (CfD) derivative which is a derivative financial instrument and are recorded on the balance sheet at fair value with movements recorded in the profit and loss. On 23 December 2021, the Group entered into a Retail PPA to supply renewable energy from January 2024 to December 2030 to support its Victorian operations. The Retail PPA contract type differs to the Financial PPA contract type in that it does not contain a CfD derivative. Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The financial risk management function is carried out centrally under the policies approved by the Board. The Group reviews operations actively to identify and monitor all financial risks and to mitigate these risks through the use of hedging instruments where appropriate. The Board is kept informed in a timely manner of any material exposures to financial risks. The Group continuously monitors risk exposures over time through reviewing cash flow sensitivities, market analysis and ongoing communication within the Group. When measuring financial risk, the Group considers the positive and negative exposures, existing hedges and the ability to offset exposures.

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