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Finance Costs

Finance Costs by Nature

US$ Million Average interest rate
P/L Cash
Balance at
31 December
2016
Finance costs
2016 2015
(Increase)/ decrease
Secured borrowings
    (including realised interest rate swap costs)
Convertible bonds (Note)
3.9%
5.2%
3.9%
2.5%
723.8
115.4
22.1
12.4
21.5
17.1
(3%)
28%
4.3% 3.4% 839.2 34.5 38.6 11%
Finance lease liabilities
Unrealised interest rate swap income
Other finance charges
-
(1.6)
1.0
1.0
(1.6)
1.8
Total finance costs
Interest coverage (calculated as EBITDA divided by total gross finance costs)
33.9
0.7x
39.8
2.3x
15%

Note: The convertible bonds have a P/L cost of US$12.4 million and a cash cost of US$6.5 million.

The KPIs on which management focuses to assess the cost of borrowings are average interest rates for different types of borrowings and the Group’s interest coverage (see table above).

The Group aims to achieve a balance between floating and fixed interest rates on its long-term borrowings. This is adjusted from time to time, depending on the interest rate cycle, using interest rate swap contracts where appropriate. During the year, US$4.4 million of interest rate swap contract costs were realised and US$1.6 million of unrealised gains arose resulting in a net US$2.8 million swap contract charge. As at 31 December 2016, 65% (2015: 84%) of the Group’s long-term borrowings were on fixed interest rates. As at 31 December 2017 and 2018, we expect about 65% of the Group’s existing and committed long-term borrowings will be on fixed interest rates.


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