(c) Exchange Rate Risk
During the course of business the Group may enter into contracts for the construction of generation assets and the sale of carbon credits to be settled in a foreign currency in the future. This exposes the Group to movements in foreign exchange rates. The Group operates under a treasury policy which requires all foreign currency transactions over certain limits to be 100% hedged. Compliance with this policy is measured by forecasting future foreign currency transactions and ensuring that the exchange rate has been fixed. The Group enters into forward exchange contracts to reduce the risk from price fluctuations of foreign currency costs associated with the construction of property, plant and equipment or income associated with the sale of carbon credits. Any resulting differential to be paid or received is recognised as a component of the cost of the project for the construction of generation assets and as a part of revenue for the sale of carbon credits. The Group has elected to apply cash flow hedge accounting to these instruments.
The aggregate notional principal amounts of the outstanding forward foreign exchange contracts at
31 March 2011 was $20,689,000 (31 March 2010: $25,062,000).
The hedged anticipated transactions denominated in foreign currency are expected to occur at various dates between one month and two years from the end of the reporting period. Gains and losses recognised in the cash flow hedge reserve in equity on forward foreign exchange contracts as at 31 March 2011 will be recycled to revenue from the sale of carbon credits when the credits are sold.
At 31 March 2011, if the New Zealand dollar had weakened/strengthened by 10 per cent against the currencies with which the Group has foreign currency risk with all other variables held constant, post-tax profit for the year would not have been materially different.
Other components of equity would have been $(1,387,000)/$1,458,000 (lower)/higher (31 March 2010: $(2,248,000)/$2,041,000 (lower)/higher), arising from foreign exchange gains/losses on revaluation of foreign exchange contracts in a cash flow hedge relationship.
(d) Credit Risk
The Group has no significant concentrations of credit risk (2010: none). It has policies in place to ensure that sales are made to customers with an appropriate credit history. Where a potential customer does not have a suitable credit history a bond is required before the customer is accepted. Derivative counterparties and cash transactions are limited to high credit quality financial institutions with a minimum Standard & Poor's long-term credit rating of A+ and other large electricity market participants (all have a Standard & Poor's long-term credit rating of at least BBB). Where a potential counterparty does not meet these credit criteria the maximum level of credit exposure is set individually by the Board. The Group has policies that limit the amount of credit exposure to any counterparty.
The carrying amounts of financial assets recognised in the statement of financial position best represents the Group's maximum exposure to credit risk at the reporting date without taking account of the value of any collateral obtained. As shown in note 19, the reported accounts receivable balance includes a provision for doubtful debts of $1,800,000 (2010: $2,000,000).
The Group has around 221,000 customers (2010: 225,000), only four (2010: four) of which make up more than one per cent of the Group's total accounts receivable balance. The largest of these customers accounts for 4 per cent (2010: 7 per cent) of the Group's total accounts receivable.
As of 31 March 2011, trade receivables relating to the Group and the Parent of $3,589,000
(2010: $4,447,000) were past due but not impaired. The ageing analysis of these trade receivables
is as follows: