Vtech 2010 Annual Report Download - page 62

60 VTech Holdings Ltd Annual Report 2010
Notes to the Financial Statements
Results of the analysis as presented in the above table represent
an aggregation of the instantaneous effects on each of the
Group entities’ profit after tax and total equity measured in
the respective functional currencies, translated into USD at the
exchange rate ruling at the balance sheet date for presentation
purposes.
The sensitivity analysis assumes that the change in foreign
exchange rates had been applied to re-measure those financial
instruments held by the Group which expose the Group to
foreign currency risk at the balance sheet date, including inter-
company payables and receivables within the Group which are
denominated in a currency other than the functional currencies
of the lender or the borrower. The analysis excludes differences
that would result from the translation of the financial statements
of foreign operations into the Group’s presentation currency. The
analysis is performed on the same basis for 2009.
(c) Interest rate risk
At 31 March 2009 and 31 March 2010, the Group had no bank
borrowings.
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
2010 2009
Effective Within one Effective Within one
interest rate year interest rate year
US$ million US$ million
Floating 0.18% 113.0 0.72% 95.3
Fixed 0.67% 269.6 2.61% 191.9
Interest rate sensitivity
At the respective balance sheet dates, if interest rates had been
increased by 25 basis points and all other variables were held
constant, the Group’s profit after tax and total equity would
increase by approximately US$1.0 million and US$0.7 million
for the years ended 31 March 2010 and 2009, respectively. This
is mainly attributable to the Group’s exposure to interest rate
changes on its variable rate income-earning financial assets.
20 Financial Risk Management and Fair
Values (Continued)
(b) Foreign exchange risk (Continued)
(i) Exposure to currency risk (Continued)
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 notional principal amounts of the outstanding forward
foreign exchange contracts at 31 March 2010 were
US$11.3 million (2009: US$26.3 million).
The Group does not anticipate any material adverse effect on its
financial position resulting from its involvement in these financial
instruments, nor does it anticipate non-performance by any of its
counterparties.
(ii) Sensitivity analysis
The following table indicates the instantaneous change in the
Group’s profit after tax and total equity that would arise if foreign
exchange rates to which the Group has significant exposure
at the balance sheet date had changed at that date, assuming
all other risk variables remained constant. In this respect, it is
assumed that the pegged rate between HKD and USD would be
materially unaffected by any changes in movement in value of
the USD against other currencies.
2010 2009
Increase/ Effect on Increase/ Effect on
(decrease) in profit (decrease) in profit
foreign after tax foreign after tax
exchange and total exchange and total
rates equity rates equity
US$ million US$ million
EUR 5% (0.3) 5% 0.6
(5)% 0.3 (5)% (0.6)
CAD 5% (1.3) 5% (0.6)
(5)% 1.3 (5)% 0.6
GBP 5% 0.2 5% 0.1
(5)% (0.2) (5)% (0.1)
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.