keep an eye out for?, page-10

I guess we better start talking about the elephants in the room.

At page 51, it states that the board have adopted a policy to keep approximately $80M to $100M of home loan borrowings at fixed rates to mitigate the risk of future interest rate rises. They state that they have entered into two $40M interest rate swap agreements in June 2015 and November 2015.

The accounts show an unrealised loss of fair value movement in derivatives of $2,367,987 for the financial year. My knowledge of hedging is limited, so I will leave it up to others to comment.

Unfortunately having interest rates drop during the financial year has been costly for the business. With the loan pools increasing, I imagine it’s prudent that you take out some hedging to reduce risk. I have read somewhere that it allows FSA to offer some clients fixed rate home loans which is attractive to some borrowers.

I guess with any hedging, it’s a bit of a punt, some you win, some you lose.

If you were to add $2.4M back onto the pre-tax profit on top of the capital gain from the business sale, I think you would find that there would have been a record profit. Anyway, not to be this year!