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52 VTech Holdings Ltd Annual Report 2009
NOTES TO THE FINANCIAL STATEMENTS
19 RESERVES (CONTINUED)
Group Company
2009 2008 2009 2008
Note US$ million US$ million US$ million US$ million
Exchange reserve
At 1st April 16.7 1.3 (1.2) (1.2)
Exchange translation differences (14.6) 15.4 ––
At 31st March 2.1 16.7 (1.2) (1.2)
Capital reserve
At 1st April 1.8 2.8 1.8 2.8
Equity-settled share-based transactions 1.8 0.9 1.8 0.9
Transfer to share premium (1.9) (1.9) (1.9) (1.9)
At 31st March 1.7 1.8 1.7 1.8
Hedging reserve
At 1st April (1.0) –––
Transfer to income statement 2(0.6) 9.8 ––
Fair value gains/(losses) on hedging during the year 1.3 (10.8) ––
At 31st March (0.3) (1.0) ––
The consolidated profit attributable to shareholders includes
a profit of US$285.7 million (2008: US$99.3 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$266.5 million
(2008: US$135.7 million).
The application of share premium account is governed
by the Companies Act 1981 of Bermuda. The properties
revaluation reserve has been set up and is dealt with in
accordance with the accounting policies adopted for land
and buildings in note (H). The exchange reserve mainly
comprises exchange differences arising from the translation
of the financial statements of foreign operations. The
capital reserve comprises the fair value of the actual or
estimated number of unexercised share options granted to
employees of the company recognised in accordance with
the accounting policy adopted for share-based payments.
The hedging reserve comprises the effective portion of the
cumulative net change in fair value of hedging instruments
used in cash flow hedges pending subsequent recognition of
the hedged cash flow.
20 FINANCIAL RISK MANAGEMENT AND
FAIR VALUE
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.
(a) 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 deposits and cash 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.
(b) Foreign exchange risk
The Group is exposed to foreign currency risk primarily
through sales and purchases that are denominated in
currencies other than the functional currency of the
operations to which they relate. As the Hong Kong Dollar
(“HKD”) is pegged to United States Dollar (“USD”), the Group
does not expect any significant movements in the HKD/USD
exchange rate. The currencies giving rise to foreign currency
risk are primarily denominated in Canadian dollars (“CAD”),
Euro (“EUR”), Pounds Sterling (“GBP”), and Japanese
Yen (“JPY”).