Vector Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS continued

19. Derivatives and hedge accounting:// CONTINUED Cash flow hedges

Vector has entered into interest rate swaps and cross currency interest rate swaps (the hedging instruments) to hedge the variability in cash flows arising from interest rate and foreign currency exchange rate movements in relation to its NZD floating rate notes, GBP medium term notes and USD senior notes. The effective portion of changes in the fair value of the hedging instruments are recognised in other comprehensive income. The following are recognised in profit or loss: —— any gain or loss relating to the ineffective portion of the hedging instrument; and —— fair value changes in the hedging instrument previously accumulated in other comprehensive income, in the periods when the hedged item is recognised in profit or loss. Once hedging is discontinued, any cumulative gain or loss previously recognised in other comprehensive income is recognised in profit or loss either: —— at the same time as the forecast transaction; or —— immediately if the transaction is no longer expected to occur. All derivatives are measured at fair value. A change in the market data used to determine fair value will have an impact on Vector’s financial statements. The table on the previous page shows the sensitivity of the financial statements to a range of possible changes in the market data at balance date. Vector enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master agreements. The ISDA agreements do not meet the criteria for offsetting in the balance sheet for accounting purposes. This is because Vector does not have any currently legally enforceable right to offset recognised amounts. Under the ISDA agreements the right to offset is enforceable only on the occurrence of future events such as a default on the bank loans or other credit events. The potential net impact of this offsetting is disclosed in column ‘amount after applying rights of offset under ISDA agreements.’ Vector does not hold and is not required to post collateral against its derivative positions.

Market rate sensitivity

Rights to offset

2018 $M

2017 $M

AMOUNT AFTER APPLYING RIGHTS OF OFFSET UNDER ISDA AGREEMENTS

AMOUNT AFTER APPLYING RIGHTS OF OFFSET UNDER ISDA AGREEMENTS

DERIVATIVES POSITION AS PER BALANCE SHEET

DERIVATIVES POSITION AS PER BALANCE SHEET

Derivative assets Derivative liabilities

56.6

10.6

38.0

(117.0)

(71.0) (60.4)

(163.1) (125.1)

(125.1) (125.1)

Net amount

(60.4)

96

Vector://AR 18

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