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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
62
33.
FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (Continued)
Interest rate risk management
The Group is exposed to interest rate risk as it has borrowed funds from banks and financial institutions and has
placed funds in interest bearing time deposits with banks during the year.
The Group is exposed to interest rate risk because the entities within the Group borrow funds at both floating and
fixed interest rates. This risk is mitigated by the Group by maintaining an appropriate mix of floating and fixed rate
borrowing.
The Group’s exposure to interest rates on financial assets and liabilities are detailed in the liquidity risk management
section of this note.
The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in interest
rates of + 1% with effect from the beginning of the year. These changes are considered to be reasonably possible
based on observation of current market conditions. The calculations are based on the Group’s financial instruments
held at each consolidated statement of financial position date. All other variables are held constant. There has been
no change in the methods and the assumptions used in the preparation of the sensitivity analysis.
A positive number below indicates an increase in profit and negative number indicates decrease in profit. A 1%
decrease in the interest rates would have the opposite effect.
30.06.14
30.06.13
31.12.13
31.12.12
31.12.11
Audited
Unaudited
Audited
Audited
Audited
USD 000’s USD 000’s USD 000’s USD 000’s USD 000’s
Impact on consolidated
statement of income
(1,539)
(1,250)
(1,645)
(600)
(530)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to
the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of
mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties
are continuously monitored and the aggregate value of transactions concluded is spread amongst approved
counterparties. On-going credit evaluation is performed on the financial condition of accounts receivable.
During the period ended 30 June 2014, 83% of total revenue (period ended 30 June 2013: 73%, year ended
2013:74% 2012: 91% 2011:67%) was derived from the sales to the Group’s largest counterparty, EGPC. Further
details of the Group’s receivables with EGPC are provided in note 4 (“Debtor recoverability”). The Group defines
counterparties as having similar characteristics if they are related entities.
Credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with
high credit ratings assigned by international credit rating agencies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:
As at 30 June
As at 31 December
2014
2013
2013
2012
2011
Audited
Unaudited
(Restated)
Audited
(Restated)
Audited
(Restated)
Audited
(Restated)
USD 000’s USD 000’s USD 000’s USD 000’s USD 000’s
Trade and other receivables
159,534
189,486
150,395
201,918
163,812
Cash and bank balances
125,349
29,049
127,594
46,766
38,762
284,883
218,535
277,989
248,684
202,574