Vtech 2011 Annual Report Download - page 57

VTech Holdings Ltd Annual Report 2011 55
18 Reserves (Continued)
(b) The Company (Continued)
The consolidated profit attributable to shareholders includes
a profit of US$142.9 million (2010: US$124.6 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$199.7 million (2010: US$250.4
million).
(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 (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 values of the actual or
estimated number of share options and Awarded Shares granted
to employees of the company recognised in accordance with the
accounting policy adopted for share-based payments in note (S).
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 flows.
19 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. The Group’s five largest customers, in aggregate accounted
for approximately 34.1% of the Group’s revenue during the year.
The Group manages these risks by monitoring credit ratings
and limiting the aggregate risk to any individual counterparty.
In addition, credit risk is mitigated by the use of credit insurance
plans.
(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”),
Japanese Yen (“JPY”), Australian dollars (“AUD”) and Renminbi
(“RMB”).
(i) Exposure to currency risk
The Group enters into forward foreign exchange contracts in
order to manage its exposure to fluctuations in foreign currency
exchange rates on recognised assets and liabilities. As at 31
March 2011, the notional principal amounts of these outstanding
forward foreign exchange contracts were US$18.7 million (2010:
US$11.3 million) with net negative fair value of US$0.1 million
(2010: positive US$0.3 million) recognised as derivative financial
instruments.
In addition, the Group uses forward foreign exchange contracts
to hedge the exchange rates fluctuation for the purchase of
RMB in respect of highly probable forecast transactions for the
Group’s PRC operations. Forward foreign exchange contracts
are matched with anticipated future cash flows. As at 31 March
2011, the notional principal amounts of the outstanding forward
foreign exchange contracts hedging highly probable forecast
transactions were US$145.6 million with net positive fair value of
US$0.5 million (2010: US$nil) recognised as derivative financial
instruments.
All of the forward foreign exchange contracts have maturities of
less than one year after the balance sheet date.
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.