Vtech 2010 Annual Report Download - page 61

VTech Holdings Ltd Annual Report 2010 59
19 Reserves (Continued)
(c) Nature and purpose of reserves
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 (I).
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 in note (T).
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
Values
Exposure to credit, liquidity, interest rate and currency risks
arises in the normal course of the Group’s business. The Group’s
exposure to these risks and the financial risk management
policies and practices used by the Group to manage these risks
are described below.
(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 with sound credit ratings. 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 credit
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”).
(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.
2010 2009
CAD EUR GBP JPY CAD EUR GBP JPY
million million million million million million million million
Group
Debtors, deposits and prepayments – 4.6 – – – 3.4 – –
Intercompany receivables – 0.5 3.4 – 0.3 1.4 2.8 1.3
Cash and cash equivalents 0.2 1.8 – – 13.0 12.9 5.0 –
Creditors and accruals – (1.7) – (90.7) – (1.2) – (117.1)
Intercompany payables (27.9) (5.6) (0.1) (17.8) (25.6) (0.3) (3.7) (12.0)
Notional amounts of forward
foreign exchange contracts at
fair value through profit or loss (3.6) (4.2) – – – – – –
Notional amounts of forward
foreign exchange contracts
held as cash flow hedging
instruments – – – – (6.0) (5.3) (3.0) –
Net exposure to currency risk (31.3) (4.6) 3.3 (108.5) (18.3) 10.9 1.1 (127.8)