Notes to the financial statements (continued) Section 4: Debt and equity (continued) 17. Financial risk management (continued) B. Market risk Market risk is the risk to Western Power that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Western Power has exposures to movements in interest and foreign exchange rates. i. Interest rate risk Interest rate risk is the risk to Western Power that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk in Western Power arises from borrowing obligations with floating rates. Western Power has an interest rate risk management strategy which aims to manage exposures to interest rate movements. Debt portfolio structure guidelines are set to manage the interest rate risks arising from Western Power’s commercial and regulatory environment. Interest rate exposure mix guidelines are set to ensure that Western Power is not exposed to excess risk from interest rate volatility. Interest rate forecasts are continuously monitored and, where appropriate, exposures to interest rates are managed through the use of Board approved hedging instruments such as interest rate swaps and forward domestic borrowing commitments. The critical terms of these hedging instruments must align with the hedged items.
ii. Foreign currency risk Foreign currency risk is the risk to Western Power that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk in Western Power arises from commercial transactions denominated in foreign currency, principally for the purchase of inventories and capital equipment from foreign suppliers. Western Power’s foreign currency risk management strategy aims to manage significant exposures through the use of Board approved hedging instruments, such as forward exchange contracts that provide certainty on costs. The critical terms of these hedging instruments must align with the hedged items. Western Power’s managed foreign currency risk as at the reporting dates presented, is shown in table 36 below. iii. Sensitivity analysis Table 37 (overleaf) summarises the potential impact to the annual post-tax profit and other comprehensive income of Western Power as at the reporting dates presented, due to movements in interest and foreign exchange rates. The assumptions used are based on management’s best estimate of a reasonably possible movement given current market conditions.
Table 36: Managed foreign currency risk
2024/25
2023/24
United States Dollar 0.6469
United States Dollar 0.6630
Canadian Dollar
Euro
Euro
0.6099
0.8776
0.5763
Weighted average foreign exchange rate Forward exchange contracts maturing ($’000): Within one year Later than one year but not later than five years
15,996 10,864
832 -
876 -
17,212 11,222
1,389 -
114
Western Power Annual Report 2025
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