Page 61 - NZPM Annual Report 2017

(d) Capital risk management
The main objective of capital risk management is to ensure the Group operates as a going concern, meeting
debts as they fall due, maintaining the best possible capital structure and reducing the cost of capital. Group
capital consists of retained earnings. To maintain or alter the capital structure the Group has the ability to
review the size of the dividends paid to shareholders, return capital or issue new shares, reduce or increase
debt or sell assets.

The Group’s policy is to maintain a strong capital base so as to maintain investor and creditor confidence
and sustain future development of the business.

The Group’s policy in respect of capital management and allocation are regularly reviewed by the board of
directors. On 28 July 2016 it was resolved to reduce the maximum amount of investment in new redeemable
preference shares by any investor and their related parties from $1,500,000 to $1,000,000; also to limit new
investment by any investor and their related parties in new redeemable preference shares to $100,000 per
quarter.

On 24 November 2016 it was resolved that the company enter into a $8,000,000 intra-day agreement with
Westpac. The agreement was an addendum to the other funding agreements between the company and
Westpac, made to provide daily flexibility to the Group’s operating banking needs.
In February 2017, NZPM agreed to a proposal by Westpac to extend the $12,000,000 bank facility by one year
to expire on 31 December 2019. There have been no other material changes in the Group’s management of
capital during the year.

There are a number of externally imposed bank financial covenants required as part of term debt facilities.
These covenants are calculated monthly and reported to the bank quarterly.

Under the Facility Agreement the Group must maintain:

(i) Funding cost cover ratio - adjusted EBIT, (earnings before non-recurring items, additional amortisation for
the computer system, interest and tax), for the Group against its total borrowing costs (including cash flows
for derivative instruments but excluding market value changes of the derivative instruments), and requires
this ratio to exceed 1.5 times. The funding cost cover ratio is tested on a rolling 12 month basis.

(ii) Quasi equity ratio – an equity ratio of 40% which excludes intangible assets, investment in associates,
advances to and from subsidiaries and co-operative share capital.

(iii) Liquidity ratio – a liquidity ratio whereby the aggregate value of stock and trade debtors is at least 1.5
times the value of trade creditors and all outstanding balances due to Westpac under the Facility
Agreement.

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