Vtech 2004 Annual Report Download - page 46

44
Notes to the
Financial Statements
VTech Holdings Ltd Annual Report 2004
19 RESERVES (continued)
The consolidated profit attributable to shareholders includes a
profit of US$6.3 million (2003: US$13.1 million) which has been
dealt with in the financial statements of the Company.
Reserves of the Company available for distribution to shareholders
amounted to US$41.3 million (2003: US$46.3 million).
20 FINANCIAL INSTRUMENTS The Group enters into foreign
exchange contracts and interest rate swaps to hedge certain
exposures on fluctuations of foreign currency exchange rates and
interest rates respectively. The Group does not use derivative
financial instruments for speculative purposes.
Credit risk Financial assets which potentially subject the Group
to credit risk consist principally of cash, short-term deposits and
trade debtors. The Group’s cash equivalents and short-term
deposits are placed with major financial institutions. Trade debtors
are presented net of the allowance for doubtful debts. Credit risk
with respect to trade debtors is limited due to the large number of
customers comprising the Group’s customer base and their
dispersion across different industries and geographical areas.
Accordingly, the Group has no significant concentration of credit
risk. In addition, credit risks are mitigated by the use of insurance
plans.
The Group manages these risks by monitoring credit ratings and
limiting the aggregate risk to any individual counterparty.
Foreign exchange risk The Group enters into foreign exchange
contracts in order to manage its exposure to fluctuations in foreign
currency exchange rates on specific transactions. Foreign exchange
contracts are matched with anticipated future cash flows in foreign
currencies, primarily from sales.
Interest rate risk The Group’s income and operating cash flows
are affected by the change in market interest rates in relation to its
interest-bearing loans. The Group uses interest rate swaps as cash
flow hedges of future interest payments to convert certain
borrowings from floating rates to fixed rates.
Fair values The fair value of interest rate swaps is calculated as
the present value of the estimated future cash flows. The fair value
of forward foreign exchange contracts is determined using forward
exchange market rates at the balance sheet date.
Derivative financial instruments Forward foreign exchange
contracts and interest rate swaps contracts were designated as
cash flow hedges and remeasured to fair values.
Forward foreign exchange contracts 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 forecasted 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 19 on the financial statements.
At 31st March 2004, there were no outstanding forward foreign
exchange contracts (2003: nil).
The Group does not anticipate any material adverse effect on its
financial position resulting from its involvement in these financial
instruments, nor does it anticipate non-performance by any of its
counterparties.
Interest rate swaps At 31st March 2004, there were no
outstanding interest rate swaps (2003: nil).
Fair values The fair value of trade debtors, bank balances, trade
creditors and accruals and bank overdrafts approximate their
carrying amounts due to the short-term maturities of these assets
and liabilities. The fair value of term loans and obligations under
finance leases is estimated using the expected future payments
discounted at market interest rates.
The weighted average effective interest rate on short term bank
deposits was 1.1% (2003: 1.2%) and these deposits have an
average maturity of 1 day.
21 COMMITMENTS
2004 2003
US$ million US$ million
(i) Capital commitments for property,
plant and equipment
Authorised but not contracted for
25.0 17.0
Contracted but not provided for
7.6 3.2
32.6 20.2
(ii) Operating lease commitments
The future aggregate minimum lease
payments under non-cancellable
operating leases are as follows:
Land and buildings
In one year or less
6.5 6.9
Between one and two years
6.4 6.1
Between two and five years
8.2 11.9
In more than five years
3.7 3.5
24.8 28.4