4 OCTOBER
NEW ZEALAND GAZETTE
3333

12. FINANCIAL INSTRUMENTS

12.1 CREDIT RISK

Credit risk is the risk that an outside party will not be able to meet its obligations to the company. Financial instruments which potentially subject the company to concentrations of credit risk consist principally of cash deposits, short term deposits and trade receivables. The maximum credit risk is the book value of these financial instruments however, the company considers the risk of non-recovery of these amounts to be minimal.

The company places its cash deposits with high credit quality financial institutions. Concentration of credit risk with respect to accounts receivable is limited due to the large number of customers.

12.2 INTEREST RATE RISK

Interest Rate risk is the risk that interest rates will change, increasing or decreasing the cost of borrowing or lending. The company’s short term deposits are at fixed interest rates and mature within one year. Interest rates on non-current borrowing’s are linked to the 90 day bank bill rate (National Bank buy rate).

12.3 CURRENCY RISK

Currency risk is the risk that amounts payable in foreign currencies will change due to movements in exchange rates. The company enters into foreign currency forward exchange contracts in order to manage its exposure to fluctuations in foreign currency exchange rates on the purchase of specific plant and equipment items from overseas suppliers. Total cover under forward exchange contracts at balance date was $nil (1998 $nil).

12.4 FAIR VALUES

The carrying amount of cash, short term deposits and trade receivables reflect their fair values. The fair value of foreign currency forward exchange contracts represents the estimated amount the company would receive on termination of the contract at balance date, thereby taking into account the unrealised gain of open contracts.

13. RECONCILIATION OF OPERATING SURPLUS AFTER TAXATION WITH CASH FLOWS FROM OPERATING ACTIVITIES

Operating Surplus after Taxation 975,408
Non Cash Items
Depreciation 1,161,802
Future Income Tax Benefits 64,499
Change in Non Current Employee Entitlements 30,127

                                                                2,231,836

Movements in Working Capital Items
(Increase)/Decrease in Accounts Receivable 382,799
(Increase)/Decrease in Inventories 112,741
Increase/ (Decrease) in Accounts Payable 470,577
Increase/ (Decrease) in Taxation Payable (491,850)

                                                                474,267

Net Cash Flows from Operating Activities 2,706,103

14. RELATED PARTIES

Transactions with the related parties are for the period 1 April 1998 to 31 March 1999
No related party debt has been written off or forgiven.

14.1 PARTIES ASSOCIATED WITH DIRECTORS

The company contracted with parties associated with certain directors of Marlborough Lines Limited. These transactions involve the provision of legal and consulting services. All transactions were at commercial rates.

PJ Radich (Radich Dwyer Hardy-Jones Clark) 29,866 81,890
Amounts owed by the company as at 31 March to be paid as a normal monthly account 962

14.2 CONTRACTING DIVISION OF MARLBOROUGH LINES

The contracting division of Marlborough Lines Limited has provided the following services at commercial rates

Construction of subtransmission assets 823
Construction of zone substations 49,347
Construction of distribution lines and cables 23,546
Construction of medium voltage switchgear 9,980
Construction of distribution substations 14,191
Construction of low voltage reticulation 117,105
Maintenance of assets 946,460
Consumer connections and disconnections 29,779
Other services 773,001

The Contracting Division of Marlborough Lines Limited has paid for the following
Other services 601,090

At year end there were no outstanding balances

14.3 SHAREHOLDERS

The Trustees of the Marlborough Electric Power Trust hold all the Company’s shares. The company may from time to time advance funds of a short term nature to the Marlborough Electric Power Trust. The company dividend is also paid to the same trust.

Dividends paid to the trust 172,993
Secretarial costs charged to the trust 6,750
Amounts owed by the trust to the company as at 31 March to be paid as a normal monthly account 20,531 22,907

15. EVENTS SUBSEQUENT TO BALANCE DATE

There were no events subsequent to balance date requiring reporting.