Annual Report - AWB Limited

AWB LIMITED Notes to and forming part of the financial statements for the year ended 30 September 200831. Financial Risk Management Objectives and Policies (continued)Liquidity risk (continued)The Group manages liquidity risk associated with derivative contracts on a portfolio basis, combining commodity sale and purchasecontracts with financially-settled derivative assets and liabilities.The table below represents the cash inflows and outflows of the derivative instrument portfolio held by the Group as at balance date.AWB Limited does not hold derivative instruments.Contractual maturities on derivative instrumentsBetween0-3 monthsBetween3-6 monthsBetween6-12 monthsBetween 1and 2 yearsBetween 2and 5 yearsOver5 years Total$’000 $’000 $’000 $’000 $’000 $’000 $’00030 September 2008ConsolidatedTotal inflow 3,184,454 652,591 210,351 24,387 - - 4,071,783Total outflow (3,329,467) (472,272) (171,764) (33,721) (3,501) (16) (4,010,741)Net inflow/(outflow) (145,013) 180,319 38,587 (9,334) (3,501) (16) 61,04230 September 2007ConsolidatedTotal inflows 1,794,254 238,025 53,803 33,998 3,930 78 2,124,088Total outflows (1,809,473) (236,267) (37,350) (40,201) (2,343) - (2,125,634)Net inflow/(outflow) (15,219) 1,758 16,453 (6,203) 1,587 78 (1,546)Discussion of contractual maturity on derivative instrumentsExpected net inflows and outflows have been calculated using spot rates as at balance date and reflect gross and net settled positions whereapplicable. The maturity analysis includes contractual cash flows on both derivative assets and derivative liabilities. Contracted cash outflows arenot expected to equate to actual cashflows as the group utilises inventory and other financing facilities whereby title to inventory passes to thefinancier as security for the funding.Credit riskCredit risk is the risk of loss caused by another party not fulfilling its obligations, including:• The risk that a customer or counterparty that has been provided with a product or service is unable or unwilling to meet its obligations; and• The risk that a party reneges on a forward contract prior to the due date or delivery date without settling the price differential.Group ExposureThe Group is exposed to credit risk in the form of:• loans to customers for the purchase of farm assets including land, crops and livestock;• short term commercial trading accounts for customer purchases of farm supplies;• amounts owing for grain trading and derivative financial instruments over commodities; and• exposures to financial institutions.Management of ExposureCredit risk is overseen by a Credit Risk Management Committee (‘the Committee’). The Committee has authority to approve transactions, reviewcredit policy, consider emerging risks and adjust credit risk appetite.The credit risk control system includes:• Risk assessment and measurement tools at the counterparty level;• Regular reporting on credit quality for all portfolios and products;• A system of delegated approval authorities based on the experience and training of the personnel concerned; and• Determination of an impairment allowance that represents an estimate of incurred losses in respect of loans and receivables.110 www.awb.com.au