Telstra 2011 Annual Report Download - page 161

Telstra Corporation Limited and controlled entities
146
Notes to the Financial Statements (continued)
(a) Risk 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
per cent adverse/favourable movement in foreign exchange rates
based on our balances as at reporting 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 or loss. The revaluation impact
attributable to foreign exchange movements will largely offset
between the derivatives and the borrowings, however there will be
some profit or loss 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 or loss is primarily
attributable to the discounting effect of the foreign exchange gains
and losses on the hedging derivatives.
(ii) Adverse and favourable impacts include $2 million (2010: $1
million) relating to purchases of property, plant and equipment,
which would affect the cost of the asset and would affect profit or
loss as the assets are depreciated over their useful lives.
(iii) The lower sensitivity in 2011 compared to 2010 is primarily due
to the shift in the fair value of our portfolio as at 30 June valuation
dates together with the maturity during the year of our Euro bond
in a cash flow hedge.
(iv) 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. The
lower sensitivity in 2011 compared to 2010 reflects the sale of our
net investment in SouFun Holdings Ltd during fiscal 2011.
18. Financial risk management (continued)
TABLE C Telstra Group
10% adverse movement 10% favourable movement
Net profit or
loss
Equity
(foreign
currency
translation
reserve)
Equity (cash
flow hedging
reserve)
Net profit or
loss
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)
2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
$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). . . . . . . (9) (5) ----11 8----
Revaluation of derivatives
and underlying exposure -
cash flow hedges of forecast
transactions (ii) . . . . . . (23) (21) ----21 25 ----
Revaluation of derivatives -
cash flow hedges of offshore
loans (iii) . . . . . . . . . -- - (11) (24) ----14 33
Net foreign investments (iv) --(90) (163) ----110 199 -
(32) (26) (90) (163) (11) (24) 32 33 110 199 14 33