6 Months 6 Months 1 to 2 2 to 5 Over Contractual Carrying
or Less to 1 Year Years Years 5 Years Total Amount
2011 $m $m $m $m $m $m $m
Bank loans* 2.1 1.5 2.9 137.6 - 144.1 135.4
144a Bonds – Foster’s Finance Corp - - - - - - -
Amounts due to Foster’s Group entities - - - - - - -
Other loans - 1.1 - - - 1.1 1.1
Interest rate swaps – fixed - - - - - - -
Forward foreign exchange contracts 0.6 - - - - 0.6 0.6
Trade creditors 126.5 - - - - 126.5 126.5
Other creditors 242.7 - - - - 242.7 242.7
Total financial liabilities 371.9 2.6 2.9 137.6 - 515.0 506.3
Maturing in:
6 Months 6 Months 1 to 2 2 to 5 Over Contractual Carrying
or Less to 1 Year Years Years 5 Years Total Amount
2010 $m $m $m $m $m $m $m
Bank loans - - - - - - -
144a Bonds – Foster’s Finance Corp 19.5 346.4 17.2 426.0 - 809.1 709.9 Amounts due to Foster’s Group entities 10,546.6 - - - - 10,546.6 10,546.6
Other loans - - - - 1.7 1.7 1.7
Interest rate swaps – fixed - (9.1) - - - (9.1) (9.1)
Forward foreign exchange contracts - - - -
Trade creditors 94.2 - - - - 94.2 94.2
Other creditors 142.1 - - - - 142.1 142.1
Total financial liabilities 10,802.4 337.3 17.2 426.0 1.7 11,584.6 11,485.4
* Bank loans are stated net of capitalised facility borrowing costs in this table.
TWE Group’s financial liabilities represent trade creditors, other creditors and amounts payable to controlled entities. Trade creditors and other creditors are payable within six months or less and amounts payable to controlled entities are payable on demand.
(b) Capital management
TWE Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide returns to shareholders and to provide benefits to other stakeholders. Management also aims to maintain an optimal capital and funding structure that optimises the cost of capital available to the TWE Group over the long term. The key objectives include:
• maintaining a credit profile and the requisite financial metrics that secure access to alternate funding sources with
a spread of maturity dates and sufficient undrawn committed facility capacity; and
• optimising over the long term, and to the extent practicable, the weighted average cost of capital to reduce the cost
of capital to the TWE Group while maintaining financial flexibility.
In order to maximise the capital structure, management may alter the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, vary discretionary capital expenditure, draw down additional debt or sell assets to reduce debt in line with the strategic objectives and operating plans of the TWE Group.
We draw your attention to note 2 which describes the impact on the reported results of Treasury Wine Estates arising from transactions and restructuring activities undertaken as part of the demerger from Foster’s Group Limited.
Various financial ratios and internal targets are assessed and reported to the Board on a regular basis by management to monitor and support the key objectives set out above. These ratios and targets include:
• An earnings to net interest expense ratio and a total net indebtedness to earnings before interest, tax, depreciation,
amortisation and self-generating and regenerating assets ratio.
(c) Interest rate risk
The TWE Group’s approach to managing interest rate risk is to balance its exposure to fixed and floating interest rates in accordance with policies determined by the Board using approved derivative instruments and having regard to cash flow volatility and interest coverage.
At balance date, the group had the following mix of financial assets and liabilities exposed to variable interest rate risk: 2011 2010
$m $m Financial assets
Cash and cash equivalents 64.8 37.1
Foster’s Group Limited – loan asset - 3,722.4
Total assets 64.8 3,759.5
Financial liabilities
Bank loans (135.4) -
144a Bonds – Foster’s Finance Corp - (276.5)
Foster’s Group Limited – loan liability - (1,246.2)
Fixed rate interest swaps - 9.1
Total liabilities (135.4) (1,513.6)
TWE Treasury, in managing the TWE Group’s interest rate risk, will have regard to the underlying operating cash flows available to service the TWE Group’s interest obligations. The majority of the TWE Group’s interest rate risk arises from borrowings. Other sources of interest rate risk for the TWE Group may include interest bearing investments, creditors accounts offering a discount and debtors accounts on which discounts are offered. The TWE Group’s interest rate exposure may be managed using derivative financial instruments, which includes interest rate swaps, interest rate options and forward rate agreements.
The following sensitivity analysis shows the impact if the TWE Group’s weighted average floating interest rates had changed from the year-end rates of 2.14% (2010: 4.21%) with all other variables held constant.
Sensitivity Assumption Pre-Tax Impact on Profit
Currency 2011 2010 2011 2010
- + - + $m $m $m $m
United States dollar +/-25bp +/-25bp 0.3 (0.3) 1.2 (1.2)
Australian dollar +/-25bp +/-25bp - - (6.9) 6.9
Great Britain pound +/-25bp +/-25bp - - 0.2 (0.1)
The movements in profit on a consolidated level are primarily a result of interest costs from borrowings. There would have been no significant impact on equity (2010: nil impact).
(d) Foreign exchange risk
The focus of the TWE Group’s foreign exchange risk management activities is on its transactional foreign exchange exposure in relation to the underlying currency net cash flows. The TWE Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the controlled entities, primarily Australian dollars (AUD), United States dollars (USD) and Great British pound (GBP).
We draw your attention to note 2 which describes the impact on the reported results of Treasury Wine Estates arising from transactions and restructuring activities undertaken as part of the demerger from Foster’s Group Limited.