03Financial Statements

CEFC ANNUAL REPORT / 2015–16

Note 3: Financial Position

This section analyses the Corporation’s assets used to conduct its operations and the operating liabilities incurred as a result.
(Employee-related information is disclosed in the People and Relationships section).

3.1: Financial Assets

 

2016

$’000

2015

$’000

3.1A: Cash and Cash Equivalents

Cash on hand or on deposit

232,778

149,577

Total cash and cash equivalents

232,778

149,577

Accounting Policy

Cash is recognised at its nominal amount as this is considered fair value. Cash and cash equivalents includes: 

  1. cash on hand; and
  2. demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

For the purposes of the cash flow statement, cash and cash equivalents include cash on hand and at bank, and demand deposits in bank accounts with an original maturity of 3 months or less, to maintain liquidity.

 

2016

$’000

2015

$’000

3.1B: Short-Term Investments

Short-term deposits with financial institutions

-

100,000

Total short-term investments

-

100,000

Accounting Policy

Term deposits in bank accounts with original maturity greater than 3 months but less than 12 months are classified as short-term investments.

 

2016

$’000

2015

$’000

3.1C: Trade and Other Receivables

Goods and services receivables in connection with

 

 

Trade debtors – external parties

199

208

Total goods and services receivables

199

208

Other receivables

 

 

Unbilled receivables

371

908

Interest

3,234

5,260

Other

49

75

Total other receivables

3,654

6,243

Total trade and other receivables (gross)

3,853

6,451

Less: Impairment allowance

-

-

Total trade and other receivables (net)

3,853

6,451

Receivables are expected to be recovered

 

 

No more than 12 months

3,853

6,451

Total trade and other receivables (net)

3,853

6,451

Receivables are aged as follows

 

 

Not overdue

3,853

6,451

Total trade and other receivables (gross)

3,853

6,451

Credit terms for goods and services were within 30 days (2015: 30 days)
Interest receivable is due monthly, quarterly or upon maturity, depending on the terms of the investment.

Accounting Policy for Financial Assets

Initial Recognition and Measurement

The Corporation classifies its financial assets, at initial recognition, in the following categories:

  1. financial assets at fair value through profit or loss (‘FVPL’);
  2. held-to-maturity (‘HTM’) investments;
  3. AFS financial assets; and
  4. loans and receivables.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

Financial Assets at FVPL

Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as financial assets at FVPL where the financial assets:

  1. have been acquired principally for the purpose of selling in the near future;
  2. are derivatives that are not designated and effective as a hedging instrument; or
  3. are parts of an identified portfolio of financial instruments that the Corporation manages together and has a recent actual pattern of short-term profit-taking.    

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in the surplus attributable to the Australian Government in the statement of comprehensive income. The net gain or loss recognised in surplus attributable to the Australian Government incorporates any interest earned on the financial asset.

The Corporation had no financial assets at FVPL during the financial years ended 30 June 2016 and 2015.

AFS Financial Assets

AFS financial assets include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income and credited in the reserves until the investment is derecognised, at which time the cumulative gain or loss is recognised in other gains in the statement of comprehensive income, or the investment is determined to be impaired when the cumulative loss is reclassified from the reserves to the statement of comprehensive income as a write-down and impairment of assets. Interest earned while holding AFS financial assets is reported as interest income using the effective interest method in the statement of comprehensive income.

The Corporation evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Corporation is unable to trade these financial assets due to inactive markets, the Corporation may elect to reclassify these financial assets if Management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the AFS category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified as a write-down and impairment of assets in the statement of comprehensive income.

Where a reliable fair value cannot be established for unlisted investments in equity instruments, these instruments are valued at cost.

HTM Investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Corporation has the positive intent and ability to hold to maturity are classified as HTM investments. HTM investments are recorded at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis.

The Corporation had no HTM investments during the financial years ended 30 June 2016 and 2015.

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.

This category generally applies to short-term investments, loans and advances and other financial assets.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Corporation’s statement of financial position) when:

    - The rights to receive cash flows from the asset have expired; or

    - The Corporation has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Corporation has transferred substantially all the risks and rewards of the asset, or (b) the Corporation has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Effective Interest Method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis, except for financial assets that are recognised at fair value through profit or loss.

Impairment of Financial Assets

Financial assets held at amortised cost

The Corporation is required to ascertain the extent to which its loans are likely to be recoverable. Given the risk position that may be assumed by the Corporation in its various loans (e.g. senior debt, unsecured debt, subordinated or mezzanine debt, longer terms, policy risk in relation to the Renewable Energy Target, electricity price volatility, etc.) it is considered possible that the Corporation will not fully recover 100% of the principal relating to all the loans it makes, although the Corporation has not identified any individual loans that are not expected to be recoverable at the reporting date.

At the end of each reporting period the Corporation assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired (and impairment charges are recognised) if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Corporation about the following loss events:

  1. significant financial difficulty of the issuer or obligor;
  2. a breach of contract, such as a default or delinquency in interest or principal payments;
  3. the Corporation, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the Corporation would not otherwise consider;
  4. it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
  5. the disappearance of an active market for that financial asset because of financial difficulties; or
  6. observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:
    1. adverse changes in the payment status of borrowers in the group; or
    2. national or local economic conditions that correlate with defaults on the assets in the group.

The Corporation first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the loss is recognised in profit or loss.

If the Corporation determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment is, or continues to be recognised are not included in a collective assessment of impairment.

The Corporation’s loans are early in their life (of what can be 10+ year fixed terms) and the Corporation does not have a history from which to ascertain the likely extent of ultimate defaults and consequential losses. Therefore, in accordance with Australian banking industry practice, the Corporation applies the following loan loss provisioning methodology to ascertain the extent to which its loans are likely to be impaired.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Corporation’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows for a group of financial assets that are collectively evaluated for impairment are estimated on the basis of

(i) the contractual cash flows of the assets in the group; and

(ii) historical loss experience for assets with credit risk characteristics similar to those in the group.

Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

Estimates of changes in future cash flows for groups of assets reflect, and are directionally consistent with, changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the group and their magnitude). The Corporation has adopted loan impairment provisioning methodology in order to ascertain the extent to which its loans are likely to be impaired but not reported. In accordance with Australian banking industry practice this incorporates internal credit risk indicators of a Shadow Credit Rating (SCR) and Loss Given Default (LGD). The methodology is maintained throughout the life of each loan, is adjusted for amortisation, is based on ‘through the cycle’ LGDs and utilises a duration of the loss emergence period of 12-18 months.

In addition to the statistically modelled output, a Management adjustment overlay is applied. The purpose of this overlay is to compensate for the unique risks of the CEFC portfolio as well as specific model and data limitations. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Corporation to reduce any differences between loss estimates and actual loss experience. When a loan or a part of a loan is uncollectable, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the charge for loan impairment in the statement of comprehensive income. If, in a subsequent period, the amount of the impairment charge decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment charge is reversed by adjusting the provision account. The amount of the reversal is recognised in the statement of comprehensive income.

 

2016

$’000

2015

$’000

3.1D: Loans and Advances

Gross funded loans

411,795

332,752

Concessional loan discount on drawn loans

(6,651)

(7,045)

Funded loans, net of concessionality discount

405,144

325,707

Less impairment allowance

(2,919)

(2,836)

Net loans and advances

402,225

322,871

Maturity analysis loans and advances, net of concessionality:

 

 

Overdue - impaired

2,692

3,431

Due in 1 year

74,727

32,925

Due in 1 year to 5 years

315,522

238,688

Due after 5 years

12,203

50,663

Funded loans, net of concessionality discount

405,144

325,707

Less impairment allowance

(2,919)

(2,836)

Net loans and advances

402,225

322,871

Concentration of risk

The largest single exposure in the loan portfolio at 30 June 2016 was for an amount of $63.5 million (2015: $67.7 million). The following table shows the diversification of investments in the loan portfolio at 30 June 2016:

 

2016

2015

 

No. of Loans

Loan Value $’000

%

No. of Loans

Loan Value

$’000

%

<$10 million

70

69,807

17%

59

40,655

13%

$10 - $30 million

2

32,230

8%

2

45,624

14%

$30 - $50 million

6

239,631

59%

3

121,689

37%

$50 - $80 million

1

63,476

16%

2

117,739

36%

Total loans and advances, net of concessionality discount

79

405,144

100%

66

325,707

100%

The following table shows the diversification of investments within the loan portfolio at 30 June 2016 by credit quality. Since the loans made by the Corporation are (in the main) to entities that will not have a formal credit rating, the Corporation has developed a Shadow Credit Ratings (‘SCR’) system. These are internal risk indicators used by the Corporation to assess the default risks of its debt instruments. The SCR assesses the probability of seeing the counterparty default under its obligations. The SCR is determined by a risk matrix based on internal risk assessments of the counterparty involved, the business risk it faces and the financial risk it has as a result of the debt it carries (including all new debt proposed in the investment opportunity).

 

2016

2015

 

Loan Value

$’000

%

Loan Value

$’000

%

Corporation’s Shadow Credit Rating

 

 

 

 

AA-    to   AA+

110,679

27%

39,135

12%

A-       to   A+

1,966

0%

6,751

2%

BBB-  to   BBB+

124,485

31%

59,273

18%

BB-     to   BB+

157,584

39%

195,286

60%

B-        to   B+

10,430

3%

25,262

8%

Total loans and advances, net of concessionality discount

405,144

100%

325,707

100%

 Impairment allowance

 

2016

$’000

2015

$’000

Reconciliation of the Impairment Allowance:
Movements in relation to loans and receivables

 

 

As at 1 July

2,836

604

Increase recognised in write-down and impairment of assets

83

2,232

Closing balance at 30 June

2,919

2,836

 

2016

$’000

2015

$’000

3.1E: Available For-Sale-Financial Assets

Quoted:

 

 

Debt securities

276,973

75,902

Equities

568

1,125

 

277,541

77,027

Unquoted:

 

 

Equities

153

30

 

153

30

Total AFS financial assets

277,694

77,057

Concentration of risk and impairment – AFS financial assets

Equity investments are amounts held by way of shares in publicly-listed entities or units in unincorporated unit trust structures. During the 2016 financial year, no permanent diminution was recognised in the value of AFS financial assets (2015: $39,000).

 

2016

$’000

2015

$’000

3.1F: Other Financial Assets

Restricted deposit accounts with financial institutions

306,594

597,875

Total other financial assets

306,594

597,875

Maturity analysis of other financial assets

Restricted deposit accounts with financial institutions are expected to mature within 12 months, however, the funds are not expected to be returned to the Corporation as they are contractually restricted to funding committed credit facilities and committed investments at call. Accordingly, the maturity analysis shown below is the anticipated maturity date at which the funds are expected to be repaid to the Corporation.

 

2016

$’000

2015

$’000

Maturity analysis for other financial assets (gross)

 

 

Due in 1 year

1,945

57,226

Due in 1 year to 5 years

142,277

198,687

Due after 5 years

162,372

341,962

Total other financial assets

306,594

597,875

Concentration of risk – other financial assets

Restricted deposit accounts with financial institutions are amounts that have been funded into accounts held with financial institutions where they are contractually limited to being applied against specific loans and receivables or investments that the Corporation has entered into. The funds are held until such time as they are either drawn down by the counterparty or the availability period expires under the facilities. The amounts are held with Australian banks, each of which have a credit rating of no less than A+. No single bank holds more than 50% of the total.

The following table shows the diversification of anticipated projects/loans that the investments are expected to be applied against at 30 June 2016 by credit quality using the Corporation’s SCR methodology:

 

2016

2015

 

$’000

%

$’000

%

Corporation’s Shadow Credit Rating

 

 

 

 

AA-    to   AA+

18,360

6%

-

-%

A-       to   A+

-

-%

-

-%

BBB-  to   BBB+

194,824

63%

206,317

35%

BB-     to   BB+

48,410

16%

246,558

41%

B-        to   B+

-

-%

20,000

3%

Unrated - equity investments

45,000

15%

125,000

21%

Total restricted deposit accounts

306,594

100%

597,875

100%

Provision for impairment – other financial assets

An impairment will be recognised if it is likely that other financial assets will not be recovered in full. In this instance a specific provision will be created for impairment. There was no impairment in 2016 (2015: $Nil).

 3.2: Non-Financial Assets

 

Other property, plant & equipment

$’000

Computer
software

$’000

Total

$’000

3.2A:  Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Computer Software

Reconciliation of the opening and closing balances of property, plant and equipment and computer software for 2016

 

 

 

As at 1 July 2015

 

 

 

Gross book value

1,474

560

2,034

Accumulated depreciation and amortisation

(1,160)

(222)

(1,382)

Total as at 1 July 2015

314

338

652

Additions:

 

 

 

By purchase or internally developed

971

441

1,412

Depreciation and amortisation expense

(264)

(270)

(534)

Disposals:

 

 

 

Gross book value

(182)

(215)

(397)

Accumulated depreciation and amortisation

182

215

397

Total as at 30 June 2016

1,021

509

1,530

Total as at 30 June 2016 represented by:

 

 

 

Gross book value

2,263

786

3,049

Accumulated depreciation and amortisation

(1,242)

(277)

(1,519)

Total as at 30 June 2016

1,021

509

1,530

 

Other property, plant & equipment

$’000

Computer
software

$’000

Total

$’000

Reconciliation of the opening and closing balances of property, plant and equipment and computer software for 2015

 

 

 

As at 1 July 2014

 

 

 

Gross book value

1,358

172

1,530

Accumulated depreciation and amortisation

(935)

(144)

(1,079)

Total as at 1 July 2014

423

28

451

Additions:

 

 

 

By purchase or internally developed

268

388

656

Depreciation and amortisation expense

(377)

(78)

(455)

Disposals:

 

 

 

Gross book value

(152)

-

(152)

Accumulated depreciation and amortisation

152

-

152

Total as at 30 June 2015

314

338

652

Total as at 30 June 2015 represented by:

 

 

 

Gross book value

1,474

560

2,034

Accumulated depreciation and amortisation

(1,160)

(222)

(1,382)

Total as at 30 June 2015

314

338

652

No indicators of impairment were found for property, plant and equipment or computer software.
No property, plant or equipment or computer software are expected to be disposed of within the next 12 months.

Accounting Policy

Asset Recognition Threshold

Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make good’ provisions in property leases taken up by the Corporation where an obligation exists to restore premises to original condition. These costs are included in the value of the Corporation’s leasehold improvements with a corresponding provision for the ‘make good’ recognised.

The Corporation’s computer software comprises purchased software for internal use. These assets are carried at cost less accumulated amortisation and any accumulated impairment losses.              

Revaluations

Following initial recognition at cost, property, plant and equipment are carried at fair value. The valuation is based on internal assessment by Management to ensure that the carrying amount of the assets do not differ materially from their fair values. As at 30 June 2016, the carrying amount of property, plant and equipment approximates their fair value.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of ‘asset revaluation reserve’ except to the extent that it reversed a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation and Amortisation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Corporation using, in all cases, the straight-line method of depreciation.  

Depreciation and amortisation rates applying to each class of depreciable asset are based on the following useful lives:

Property, plant and equipment
Office equipment: 3 to 5 years
Leasehold improvements: 5 years (or the remaining lease period if shorter)
Furniture and fittings: 5 years (or the remaining lease period if shorter)
Computer equipment: 2 to 3 years
Computer Software: straight-line basis over anticipated useful lives (typically 2 to 3 years)
Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

An item of software is derecognised when the license expires or when no further future economic benefits are expected from its use or disposal.

 

2016

$’000

2015

$’000

3.2B:  Prepayments

Prepayments

539

515

Total prepayments

539

515

Total prepayments expected to be recovered:

 

 

No more than 12 months

224

125

More than 12 months

315

390

Total prepayments

539

515

 3.3: Payables and Unearned Income

 

2016

$’000

2015

$’000

3.3A: Suppliers

Trade creditors and accruals

1,324

1,617

Total suppliers

1,324

1,617

Suppliers expected to be settled:

 

 

No more than 12 months

1,324

1,617

Total suppliers

1,324

1,617

Settlement of supplier balances was usually made within 30 days.

 

2016

$’000

2015

$’000

3.3B: Unearned Income

Unearned establishment and commitment fees income

5,536

6,530

Unearned income expected to be recognised:

 

 

No more than 12 months

1,169

1,400

More than 12 months

4,367

5,130

Total unearned income

5,536

6,530

 

2016

$’000

2015

$’000

3.3C: Other Payables

Wages and salaries

3,820

2,618

Superannuation

92

65

FBT liability

4

3

Lease liability

506

14

Other

166

304

Total other payables

4,588

3,004

Other payables expected to be settled:

 

 

No more than 12 months

3,844

2,778

More than 12 months

744

226

Total other payables

4,588

3,004

Accounting Policy

Initial Recognition and Measurement

Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities are recognised upon ‘trade date’.

Financial Liabilities at FVPL

Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in the statement of comprehensive income. The net gain or loss recognised in the statement of comprehensive income incorporates any interest paid on the financial liability.

There are no outstanding financial liabilities at FVPL as at reporting dates.

Other Financial Liabilities

Other financial liabilities, including borrowings and trade creditors/accruals, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Trade creditors and accruals and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

Derecognition

A financial liability is de-recognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of comprehensive income.

3.4: Other Provisions

 

Provision for

concessional

loans

$’000

Provision for

make good

$’000

Provision for

irrevocable

commitments

$’000

Total

$’000

As at 1 July 2015

10,233

129

498

10,860

Additional provisions made

6,836

-

-

6,836

Amounts reversed

-

-

(178)

(178)

Offset to loans and advances

(4,083)

-

-

(4,083)

Total at 30 June 2016

12,986

129

320

13,435

 

2016

$’000

2015

$’000

Other provisions expected to be settled:

 

 

No more than 12 months

5,362

1,799

More than 12 months

8,073

9,061

Total other provisions

13,435

10,860