Vtech 2007 Annual Report Download - page 51

Download and view the complete annual report

Please find page 51 of the 2007 Vtech annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 60

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60

VTech Holdings Ltd
Annual Report 2007 49
18 FINANCIAL INSTRUMENTS
The Group enters into foreign exchange contracts and interest
rate swaps to hedge certain exposures on fl uctuations of
foreign currency exchange rates and interest rates respectively.
The Group does not use derivative fi nancial 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 fi nancial 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 signifi cant
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 fl uctuations in foreign currency
exchange rates on specifi c transactions. Foreign exchange
contracts are matched with anticipated future cash fl ows in
foreign currencies, primarily from sales.
Interest rate risk
The Group’s income and operating cash fl ows are affected by
the change in market interest rates in relation to its interest-
bearing loans. The Group uses interest rate swaps as cash
fl ow hedges of future interest payments to convert certain
borrowings from fl oating rates to fi xed rates.
Fair values
The fair value of interest rate swaps is calculated as the
present value of the estimated future cash fl ows. The fair
value of forward foreign exchange contracts is determined
using forward exchange market rates at the balance
sheet date.
Derivative fi nancial instruments
Forward foreign exchange contracts and interest rate
swaps contracts were designated as cash fl ow hedges and
remeasured to fair values. The negative fair value of derivative
fi nancial instruments at 31st March 2007 designated for cash
fl ow hedges were US$46,000 (2006 positive: US$0.6 million).
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 17 on the fi nancial statements.
The contracted amounts of the outstanding forward exchange
contracts at 31st March 2007 was US$6.5 million (2006:
US$24.3 million).
The Group does not anticipate any material adverse effect on
its fi nancial position resulting from its involvement in these
fi nancial instruments, nor does it anticipate non-performance
by any of its counterparties.
Interest rate swaps
At 31st March 2007, there were no outstanding interest rate
swaps (2006: nil).
Fair values
The fair value of trade debtors, bank balances, trade creditors
and accruals and bank overdrafts approximate their carrying
amounts due to the short-term maturities of these assets
and liabilities. The fair value of term loans and obligations
under fi nance leases is estimated using the expected future
payments discounted at market interest rates.
The weighted average effective interest rate on short term
bank deposits was 5.0% (2006: 4.3%) and these deposits
had an average maturity of 1 day to 1 month.
19 COMMITMENTS
2007 2006
US$ million US$ million
(i) Capital commitments for
property, plant and equipment
Authorised but not
contracted for 46.7 48.8
Contracted but not provided for 12.8 5.9
59.5 54.7
(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 8.9 9.9
Between one and two years 5.9 6.5
Between two and fi ve years 5.8 10.6
In more than fi ve years 2.1 2.4
22.7 29.4
12cVtechNotes(E).indd49 2007/7/511:37:38PM