Vtech 2009 Annual Report Download - page 55

VTech Holdings Ltd Annual Report 2009 53
20 FINANCIAL RISK MANAGEMENT AND FAIR VALUE (CONTINUED)
(b) Foreign exchange risk (Continued)
(i) Exposure to currency risk
The following table details the Group’s exposure at the balance sheet date to currency risk rising from recognised assets or
liabilities denominated in a currency other than the functional currency of the entity to which they relate.
2009 2008
CAD EUR GBP JPY CAD EUR GBP JPY
million million million million million million million million
Group
Trade and other debtors –3.4 ––– – – –
Cash and cash equivalents 13.0 12.9 5.0 –6.7 25.0 4.5 –
Trade and other creditors –(1.2) –(117.1) –(1.0) –(154.7)
Notional amount of forward exchange
contracts held as cash flow hedging
instruments (6.0) (5.3) (3.0) ––(11.7) (2.9) –
Net exposure to currency risk 7.0 9.8 2.0 (117.1) 6.7 12.3 1.6 (154.7)
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.
The net fair value gains/(losses) at 31st March 2009 and
31st March 2008 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
forecast 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 to the financial statements.
The contracted amounts of the outstanding forward
exchange contracts at 31st March 2009 were US$26.3 million
(2008: US$23.0 million).
The Group does not anticipate any material adverse effect
on its financial position resulting from its involvement in
these financial instruments, nor does it anticipate
non-performance by any of its counterparties.
(ii) Sensitivity analysis
The approximate changes in the Group’s profit after tax and
total equity in response to reasonably possible changes
in the foreign exchange rates to which the Group has
significant exposure at the balance sheet date are as follows:
2009 2008
Increase/
(decrease)
in foreign
exchange
rates
Effect
on profit
after tax
and total
equity
Increase/
(decrease)
in foreign
exchange
rates
Effect
on profit
after tax
and total
equity
US$ million US$ million
EUR 5% 0.6 5% 0.6
(5)% (0.6) (5)% (0.6)
CAD 5% (0.6) 5% (0.8)
(5)% 0.6 (5)% 0.8
The impact on the Group’s profit after tax and total equity is
not expected to be material in response to possible changes
in the foreign exchange rates of other currencies to which
the Group is exposed.
The sensitivity analysis includes balances between group
companies where the denomination is in a currency other
than the functional currencies of the Group’s entities to
which they relate.
The sensitivity analysis has been determined assuming
that the change in foreign exchange rates occurred at the
balance sheet date and had been applied to each of the
Group’s entities’ exposure to currency risk for both derivative
and non-derivative financial instruments in existence at that
date, and that all other variables, in particular interest rates,
remain constant.
It is assumed that the pegged rate between the HKD and
USD would be materially unaffected by any changes in
movement in value of the USD against other currencies.
Results of the analysis as presented above represent an
aggregation of the effects on each of the Group entities’
profit and equity measured in the respective functional
currencies, translated into USD at exchange rates ruling
at the balance sheet date for presentation purposes. The
analysis is performed on the same basis for 2008.
(c) Interest rate risk
The Group is exposed to interest rate risk through the impact
of interest rates changes on income-earning financial assets,
the following table indicates their effective interest rates at
the balance sheet date and the periods in which they reprice
or the maturity dates, if earlier.
Deposits and cash
2009 2008
Effective
interest rate
Within
one year
Effective
interest rate
Within
one year
US$ million US$ million
Floating 0.72% 95.3 2.23% 61.2
Fixed 2.61% 191.9 4.75% 224.2