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F I N A N C I A L S T A T E M E N T S
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WE L ANNUA L REPOR T
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Summary of significant accounting policies (continued)
2.10 Derivatives
Forward exchange contracts are used to reduce the Company’s exposure to foreign exchange movements on transactions denominated in
foreign currencies. Interest rate swaps are used to reduce the Company’s exposure to interest rate risk on financing transactions.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair
value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if
so, the nature of the item being hedged. The Group designates certain derivatives as either;
(1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
(2) hedges of highly probable forecast transactions (cash flow hedges).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly
effective in offsetting changes in fair values or cash flows of hedged items.
The fair value of various derivative instruments used for hedging purposes are disclosed in note 14. Movements on the hedging reserve in
shareholders’equity are shown in the Statement of changes in equity. The full fair value of a hedging derivative is classified as a noncurrent
asset or liability when the remaining hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of
the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to any ineffective portion is recognised immediately in the profit and loss component of the
statements of comprehensive income.
Amounts accumulated in equity are reclassified to the profit and loss component of the statements of comprehensive income in the periods
when the hedged item affects the profit and loss component of the statements of comprehensive income (for instance when the forecast
sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non‑financial asset
or a non‑financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement
of the initial cost or carrying amount of the asset or liability.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately
recognised in the profit and loss component of the statements of comprehensive income. When a forecast transaction is no longer expected
to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit and loss component of the statements
of comprehensive income.
2.11 Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid.
The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the company or the counterparty.
2.12 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the
balance sheet.
2.13 Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
2.14 Convertible notes
Convertible notes issued by WEL Networks Limited can be converted to non-participating redeemable shares (NPRS) at the option of the
issuer, and where the number of NPRS to be issued does not vary with changes in fair value, are classified as equity. Convertible notes are
initially measured at fair value, and are not subsequently re-measured except on conversion or expiry.
Interest payments on convertible notes are recorded as a distribution through the statement of movements in equity. Interest rate was
fixed at 8% until 31 March 2015. The convertible notes have been extended until 31 March 2020. The new interest rate from 1 April 2015
is 6.28%.
