TREASURY POLICY 1. INTRODUCTION

Transcription

1 TREASURY POLICY 1. INTRODUCTION The purpose of this document is to detail the policies and procedures of the treasury functions of Oceania Healthcare Limited ( Oceania ) and its subsidiaries (together, Oceania Group ). The Treasury functions include borrowing, interest rate, foreign exchange, commodity and credit risk management. Oceania operates its treasury function within parameters set out in this Treasury Policy to: (e) minimise the average cost of borrowings; maintain liquidity; reduce the financial risk to adverse market interest rate movements; minimise any credit risk on financial counterparties; and limit operational risks. Adherence to this document is mandatory for all Oceania personnel. The treasury functions are deemed to include all forms of: Borrowings and investments with external parties including project finance, leasing, discounting arrangements, pre-payments outside normal terms of trade and hire purchases; Guarantees (financial and performance), letters of comfort, indemnities or similar obligations; Financial facilities including overdrafts, card facilities, letter of credit facilities, bank accounts and transactional banking facilities; and Interest rate, foreign currency and commodity price hedging. This Treasury Policy will apply to all companies, joint ventures and partnerships in the group. The Oceania representative on the of management of a joint venture and partnership must ensure that Oceania s Treasury Policy is in place. This policy is to be reviewed and signed off by the every two years. 2. DELEGATED AUTHORITIES Oceania manages these financial risks on a centralised basis and the responsibility for management and control of the treasury functions within the parameters of the Treasury Policy is vested with the Chief Financial Officer. The treasury responsibilities and delegated authorities are summarised below: Activity Approving the Treasury Policy including counterparties limits, approved financial instruments and authorised dealers Approving borrowings, investments, guarantees and financial facilities including refinancing debt Delegated Authority

2 Activity Approving authorised signatories and new bank accounts Setting the interest rate risk profile Approving transactions outside the Treasury Policy Transacting derivatives within the policy limits Daily drawings under debt facilities Daily cashflow management including money market investments within the agreed limits Management of operating and finance leases Delegated Authority CEO/ CFO CEO/ CFO CEO/ CFO CEO/ CFO 3. LIQUIDITY (BORROWING) RISK MANAGEMENT Liquidity risk management refers to the timely availability of funds when needed, including for unforeseen events, without incurring penalty costs, breaching security arrangements or borrowing covenants and minimising the overall cost of borrowings. (e) (f) (g) Ensuring Oceania has 12 months before the funding lines mature and where possible spreading the maturities to avoid undue concentration of maturities. Avoiding exposure to any one bank by always having 2 or more banks or sources of funding when borrowings are in excess of $100 million. Ensuring that Oceania has headroom in its debt facilities of $10 million to cover the next 12 months cashflow, including dividend payments (based on a payout ratio of 50-60% of forecast Underlying NPAT) and the cost to complete developments commenced based on the rolling 12 month cashflow forecast. Monitoring borrowing covenants and ratios under Oceania s lending and security arrangements to ensure that they can be reasonably satisfied for the next 12 months based on forecasts and reporting to the on a monthly basis. The targeted headroom for the interest cover ratio is a minimum of 25%. On refinancing, consideration is to be given to optimising the duration of the debt, covenants and terms, spread of maturities, margins, drawing flexibility and risk. Ensuring all reporting and other commitments under the banking documents are met on time and maintain a close relationship with the lenders and to a lesser degree other debt providers. Prior to signing, all new banking documentation must have legal, tax and accounting sign off. 4. INTEREST RATE RISK MANAGEMENT Interest rate risk management refers to limiting unexpected increases in interest costs resulting from interest rate movements over a multi year period. Ensuring that the level of fixed rate debt is within the range of 40% to 80% fixed over the next three years, the position in range and the term of the fixed rate debt

3 will vary depending on the level of debt, development activity and economic conditions. The position will be monitored to minimise the amount of debt subject to interest rate reset on any one day and to ensure the floating legs of the borrowings, investments and interest rate swaps match to minimise any timing mismatches between receiving and paying rate resets. The management of the interest rate exposure is through the use of permitted financial instruments as listed in the appendices. Fixed interest rate exposures refer to any debt or interest rate instrument where the interest rates are being rest on a frequency greater than 180 days. 5. FOREIGN EXCHANGE AND COMMODITY RISK MANAGEMENT Oceania does not borrow or invest in currencies other than New Zealand dollars and foreign currency is only required to meet payments, receipts and capital expenditure. Currently Oceania does not have any commodity exposures that are approved for hedging. If a commodity, e.g. electricity, is to be hedged the will approve a specific policy, which will be included in these Treasury Policies. All committed exposures, including capital expenditures, over $100k must be hedged on commitment and the maturity of the hedge should equate to the maturity of the underlying exposure. Forward exchange contracts can only be rolled to a future date based on the historic rate twice and for a term of 6 months. The CFO must review and determine the hedging requirements for any major contracts, acquisitions and divestment with a foreign exchange components, funding or investment provisions. The management of foreign currency and commodity exposures is through the use of permitted financial instruments as listed in the appendices. 6. CASH MANAGEMENT Cash management refers to managing Oceania s cash resources and working capital to minimise interest costs and the mismatch between borrowings and investments. (e) The daily cash, debt and investment balances are to be monitored to minimise Oceania s bank accounts credit and debit balances to a maximum of +/- $5 million and ensure whilst Oceania is a net borrower no funds need to be invested. A daily cashflow projection out three months is to be maintained to monitor the cash positions and ensure drawings, debt repayments and investments match revenue and expenditures. Where possible, borrowings are to be structured to allow flexibility for the repayment and redrawing of debt when cash surpluses are available. When required surplus cash is to be placed on money market or short terms deposits. The CFO will review transactional banking services provided to Oceania at least once every three years to ensure Oceania is minimising bank fees and utilising

4 (f) technology advancements from bank providers to drive maximum efficiencies in cash and working capital management. The management of cashflow surpluses and deficits is through the use of permitted financial instruments as listed in the appendices. 7. CREDIT RISK MANAGEMENT Credit risk management refers to spreading transactions between counterparties to minimise the probability that the Group will suffer financial loss if counterparty fails. All treasury transactions are to be dealt with and spread between lending banks subject to their short-term rating being A or better. If there is only one lending bank or only one lending bank that provides competitive hedging then the can approve additional counterparties whose credit rating is A or better as per Standard & Poor s (See draft counterparty list in the appendices). All transactions are to be dealt under an International Swap Dealers Associations agreement (ISDA). 8. OPERATIONAL RISK MANAGEMENT Operational risk management refers to the controls put in place to limit financial losses due to mismanagement, error, fraud, unauthorised or inappropriate use of financial instruments and techniques. (e) (f) (g) (h) (i) Oceania does not engage in speculative trading. Different staff members will manage the dealing, confirming and accounting for transactions, so that these functions will be segregated. Only the approved dealers may enter into the permitted financial instruments. (Refer the approved dealers list in the appendices) Two authorised signatories must sign all payments and confirmations. Oceania s standard dealing, confirmation and settlement details are to be provided to all financial counterparties annually and as required. (Refer draft counterparty letter in the appendices) The Financial Controller is responsible for recording all activity relating to borrowings, investments and treasury transactions immediately in Oceania s general ledger. All hedging transactions must be marked to market semi annually and hedge accounted for under NZGAAP Bank reconciliations and the checking of deal confirmations are to be completed on a daily basis. The treasury function will be subject to regular audits. The regular management, position and performance reporting is to be completed as set out below: Report Frequency Prepared By To Rolling 12 month forecast banking Monthly CFO

5 ratios and compliance with policy Rolling 12 month cashflow forecast Monthly CFO Three month daily cashflow forecast Weekly Financial Controller CFO Treasury report incl. interest rate and debt profile, cash balances and counterparty exposure Quarterly CFO Mark to Market report Quarterly CFO Confirmations Daily Financial Controller Bank reconciliation Daily Financial Controller CFO CFO Outstanding Deals Confirmations Semi- Annually Financial Controller Auditors

6 APPENDICES 1. Approved Dealers Title Incumbent Limit CFO Matt Ward All instruments Financial Controller Kathryn Waugh All instruments 2. Permitted Financial Instruments Physical Committed Bank Loans Overdrafts Money Market Borrowings Money Market Deposits (call and term) Derivative Interest rate swaps Forward rate Agreements Cross currency swaps linked to a debt deal Interest rate option and collars FX spots, forwards and swaps FX options and collars The following risk management instruments are not permitted for use: Selling options for the primary purpose of generating premium income Structured or leveraged option strategies Interest rate futures contracts 3. Approved Counterparties To be completed if additional non-lending counterparties are required: Counterparty Standard & Poor s or equivalent rating A+ Transaction Limit (Million) 4. Standard Counterparty Details Sample Letter Dear Mr Bloggs, Oceania Healthcare Limited Standard Dealing Instructions These details are effective from the close of business on XX XXX 2016 and replace all others issued prior to this date. The address for all inward confirmations and notices is: Attention: Miss S Smith

7 Fax: Please Note: 1. All deals are to be confirmed by , facsimile or post as soon as possible after the deal has been agreed. 2. All returned deal confirmations will be signed two authorised signatories and a list is attached to this letter. The main contacts are: Area Person Phone Dealing Settlements Confirmations The current Authorised Dealers and their limits are: Title Incumbent Limit CFO Matt Ward All instruments Financial Controller Kathryn Waugh All instruments The Standard Settlement Instructions for all transactions are: Bank Bank Address Account Name Account Number Other Reference If you have any queries please contact Joe Bloggs on +649 xxxxx Please confirm receipt of these instructions by signing and returning the attached copy of this letter together with a current copy of your Standard Settlement Instructions.

8 Signed for and on behalf of Oceania Healthcare Limited Authorised Signatory Authorised Signatory