Telstra 2010 Annual Report Download - page 150

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
(a) Risks and mitigation (continued)
(iv) Sensitivity analysis - foreign currency risk (continued)
The following sensitivity analysis is based on our foreign currency
risk exposures comprising the revaluation impact on our
derivatives and borrowings and net foreign investments from a
10% adverse/favourable movement in foreign exchange rates
based on our balances as at balance date. At 30 June, had the
Australian dollar against all applicable currencies moved as
illustrated in Table C, with all other variables held constant and
taking into account identified underlying exposures and related
hedges, net profit and equity after tax would have been affected as
follows:
(i) The impact of some of our borrowings de-designated from fair
value hedge relationships or not in a hedge relationship has
resulted in some volatility to profit. The revaluation impact
attributable to foreign exchange movements will largely offset
between the derivatives and the borrowings, however there will be
some profit impact due to the fact that the derivatives are recorded
at fair value and hence the foreign exchange movements are
recognised at present value. The borrowings which are accounted
for on an amortised cost basis will reflect revaluation movements
for changes in the spot exchange rate which are not discounted.
Therefore, the impact on profit is primarily attributable to the
discounting effect of the foreign exchange gains and losses on the
hedging derivatives.
(ii) The higher sensitivity in 2010 compared to 2009 is due to an
increase in the volumes of our forecast foreign currency purchases
as at 30 June 2010 compared to 30 June 2009.
(iii) The higher sensitivity in 2010 compared to 2009 is primarily
due to the shift in the fair value of our portfolio as at 30 June
valuation dates and a new Euro bond issue entered into during the
year which is in a designated cash flow hedge.
(iv) The sensitivity does not significantly differ from the prior year.
The impact on the foreign currency translation reserve relates to
the translation of the net assets of our foreign controlled entities
including the impact of hedging. The net gain or loss in the
sensitivity analysis represents the impact relating to the unhedged
portion of the net assets of our foreign controlled entities.
18. Financial risk management (continued)
TABLE C Telstra Group
10% adverse movement 10% favourable movement
Net profit
Equity
(foreign
currency
translation
reserve)
Equity (cash
flow hedging
reserve) Net profit
Equity
(foreign
currency
translation
reserve
Equity (cash
flow hedging
reserve)
Year ended 30
June As at 30 June As at 30 June
Year ended 30
June As at 30 June As at 30 June
Gain/(loss) Gain/(loss) Gain/(loss) Gain/(loss) Gain/(loss) Gain/(loss)
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
$m $m $m $m $m $m $m $m $m $m $m $m
Revaluation of derivatives
and borrowings - de-
designated from fair value
hedges or not in a hedge
relationship (i). . . . . . . (5) (6) ----87----
Revaluation of derivatives
and underlying exposure -
cash flow hedges of forecast
transactions (ii) . . . . . . (21) (10) ----25 7----
Revaluation of derivatives -
cash flow hedges of offshore
loans (iii) . . . . . . . . . ----(24) (9) ----33 11
Net foreign investments (iv) --(163) (156) ----199 190 --
(26) (16) (163) (156) (24) (9) 33 14 199 190 33 11