Vtech 2008 Annual Report Download - page 50

NOTES TO THE FINANCIAL STATEMENTS
VTech Holdings Ltd Annual Report 2008
48
19 FINANCIAL INSTRUMENTS CONTINUED
(b) Foreign exchange risk (continued)
(i) Exposure to currency risk
The following table details the Group’s exposure at the balance sheet date to currency risk rising from recognised assets or liabilities
denominated in a currency other than the functional currency of the entity to which they relate.
2008 2007
CAD EUR GBP JPY CAD EUR GBP JPY
million million million million million million million million
Group
Trade and other receivables ––––– 2.1 – –
Cash and cash equivalents 6.7 25.0 4.5 – 6.1 22.6 – –
Trade and other payables – (1.0) – (154.7) – (1.7) – (312.7)
Notional amount of forward
exchange contracts for cash
 ow hedges – (11.7) (2.9) – – (1.7) (2.0) –
Net exposure to
currency risk 6.7 12.3 1.6 (154.7) 6.1 21.3 (2.0) (312.7)
The Group enters into foreign exchange contracts in order
to manage its exposure to  uctuations in foreign currency
exchange rates on speci c transactions. Foreign exchange
contracts are matched with anticipated future cash  ows in
foreign currencies, primarily from sales.
The net fair value gains/(losses) at 31st March on open forward
foreign exchange contracts which hedge anticipated future
foreign currency sales and purchases will be transferred from the
hedging reserve to the consolidated income statement when
the forecast sales and purchases occur, at various dates between
1 month to 6 months from the balance sheet date.
Details of the movements of fair value gains/(losses) arising from
forward foreign exchange contracts entered by the Group are
set out in note 18 to the  nancial statements.
The contracted amounts of the outstanding forward exchange
contracts at 31st March 2008 was US$23.0 million (2007: US$6.5
million).
The Group does not anticipate any material adverse e ect on
its  nancial position resulting from its involvement in these
 nancial instruments, nor does it anticipate non-performance by
any of its counterparties.
(ii) Sensitivity analysis
The approximate changes in the Group’s pro t and total equity
in response to reasonable possible changes in the foreign
exchange rates to which the Group has signi cant exposure at
the balance sheet date are as follows:
– a 5% increase/decrease in the foreign exchange rate of
EUR against USD will increase/decrease the Group’s pro t
and total equity by approximately US$0.6 million (2007:
US$1.4 million).
– a 5% increase/decrease in the foreign exchange rate of
CAD against USD will decrease/increase the Group’s pro t
and total equity by approximately US$0.8 million (2007:
US$0.4 million).
– the impact on the Group’s pro t and total equity is not
expected to be material in response to possible changes
in the foreign exchange rates of other currencies to which
the Group is exposed.
The sensitivity analysis includes balances between group
companies where the denomination is in a currency other than
the functional currencies of the Group’s entities to which they
relate.
The sensitivity analysis has been determined assuming that
the change in foreign exchange rates occurred at the balance
sheet date and had been applied to each of the Group’s entities’
exposure to currency risk for both derivative and non-derivative
 nancial instruments in existence at that date, and that all other
variables, in particular interest rates, remain constant.
It is assumed that the pegged rate between the HKD and USD
would be materially una ected by any changes in movement
in value of the USD against other currencies. Results of the
analysis as presented above represent an aggregation of the
e ects on each of the Group entities’ pro t and equity measured
in the respective functional currencies, translated into USD at
exchange rates ruling at the balance sheet date for presentation
purposes. The analysis is performed on the same basis for 2007.
(c) Interest rate risk
The Group is exposed to interest rate risk through the impact of
rates changes on income-earning  nancial assets, the following
table indicates their e ective interest rates at the balance sheet
date and the periods in which they reprice or the maturity dates,
if earlier.
Cash and cash equivalents
2008 2007
E ective
Interest rate
Within
one year
E ective
Interest rate
Within
one year
US$ million US$ million
Floating 2.23% 61.2 2.04% 30.7
Fixed 4.75% 224.2 4.59% 215.8