TomTom 2008 Annual Report Download - page 41

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Currencies
TomTom Group operates internationally and is exposed
to foreign exchange risk arising from various currency
exposures, primarily with respect to the US dollar and
the UK pound. Management has set up a policy to
manage and control this foreign exchange risk.
Foreign exchange risk is managed through the buying
and selling of options for forecast commitments and by
entering into forward contracts for actual commitments.
All such transactions are carried out within the
guidelines set by the financial risk management policy,
which has been approved by the Supervisory Board.
We are exposed to currency risk on our estimated
purchases and sales transactions that are denominated
in a currency other than the reporting currency of the
company – the euro (€). Foreign currency exposures are
based on invoices, orders and forecasted sales. We aim
to cover our currency exposure for nine months for both
purchases and sales.
We do not make use of natural hedges for anticipated
exposures, as these can prove ineffective in the event of
sharp increases or decreases in currency rates and are
therefore not considered best practice from a risk
management point of view. Foreign currency exposures
are grouped per currency to allow for more efficient
hedging. We hedge at least 80% of our anticipated and
committed foreign currency exposure, in respect of
forecast sales and purchases over the next nine months.
We use foreign exchange plain vanilla options and
foreign exchange forward contracts to hedge our
currency risk, all with a maturity of less than one year
from the reporting date.
A 2.5% strengthening of the euro against the currencies
listed below on 31 December would have increased
(decreased) equity, and profit or loss, by the amounts
shown below. This analysis assumes that all other
variables remain constant. The analysis is performed on
the same basis for 2007.
2008 2007
Strengthen Weaken Strengthen Weaken
AUD
Net profit
after taxation -254,611 242,190 -247,000 247,000
Total capital
and reserves -138,611 127,190 -146,000 149,000
GBP
Net profit
after taxation -1,153,832 1,430,268 -933,000 933,000
Total capital
and reserves -792,832 1,068,268 -779,000 783,000
USD
Net profit
after taxation 1,728,546 -1,834,088 542,000 -542,000
Total capital
and reserves 2,065,546 -2,170,088 1,013,000 -1,011,000
Interest rates
TomTom’s interest rate risk arises from long-term
borrowings. The interest is based on Euribor with a
spread which depends on certain leverage covenants.
The Euribor element of the interest coupon is hedged
for the full term of the loan with cap instruments.
Market-related interest rates are received on the cash
balances. Cash balances are only held with counterparties
that have a credit risk rating of at least AA- as rated by
an acknowledged rating agency. It is our intention to
earn a reasonable interest rate whilst maintaining a
stable investment. The investment policy has been
approved by the Supervisory Board.