Mandarin Oriental International Limited - Mandarin Oriental Hotel ...

More documents

Recommendations

Info

Financial Risk Management A Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Group’s treasury function co-ordinates, under the directions of the Board of Mandarin Oriental Hotel Group International Limited, financial risk management policies and their implementation. The Group’s treasury policies are designed to manage the financial impact of fluctuations in interest rates and foreign exchange rates and to minimize the Group’s financial risks. The Group uses derivative financial instruments, principally interest rate swaps and caps, and forward foreign exchange contracts as appropriate for hedging transactions and managing the Group’s assets and liabilities in accordance with the Group’s financial risk management policies. Financial derivative contracts are executed between third party banks and the Group entity that is directly exposed to the risk being hedged. It is the Group’s policy not to enter into derivative transactions for speculative purposes. The notional amounts and fair values of derivative financial instruments at 31st December 2008 are disclosed in note 26. i) Market risk Foreign exchange risk Entities within the Group are exposed to foreign exchange risk from future commercial transactions, net investments in foreign operations and net monetary assets and liabilities that are denominated in a currency that is not the entity’s functional currency. Group entities are required to manage their foreign exchange risk against their functional currency. To manage their foreign exchange risk arising from future commercial transactions, entities in the Group use forward foreign exchange contracts and foreign currency options in a consistent manner to hedge firm and anticipated foreign exchange commitments. The Group does not usually hedge its net investments in foreign operations except in circumstances where there is a material exposure arising from a currency that is anticipated to be volatile and the hedging is cost effective. Forward foreign exchange contracts may also be used to hedge net investments in foreign operations where the currency concerned is anticipated to be volatile, the exposure of the Group is material and the hedging is cost effective. Foreign currency borrowings are required to be swapped into the entity’s functional currency using cross-currency swaps except where the foreign currency borrowings are repaid with cash flows generated in the same foreign currency. The purpose of these hedges is to mitigate the impact of movements in foreign exchange rates on assets and liabilities and the profit and loss account of the Group. At 31st December 2008, if the United States dollar had strengthened/weakened by 10% against the Pound Sterling and Euro with all other variables unchanged, the Group’s profit after tax and total equity would have been US$0.4 million (US$0.2 million from Pound Sterling and Euro respectively) lower/higher, arising from foreign exchange losses/gains taken on translation. At 31st December 2007, if the United States dollar had strengthened/weakened by 10% against the Pound Sterling with all other variables held constant, the Group’s profit after tax and total equity would have been US$0.3 million lower/higher, arising from foreign exchange losses/gains taken to the profit and loss account on translation. The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and all other variables, in particular interest rates, had remained unchanged. The stated change represents management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. There are no other significant monetary balances held by Group companies at 31st December 2008 that are denominated in a non-functional currency. Currency risks as defined by IFRS 7 arise on account of monetary assets and liabilities being denominated in a currency that is not the functional currency; differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. 40 Mandarin Oriental International Limited
A Financial risk factors continued i) Market risk continued Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets. These exposures are managed partly by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities, and partly through the use of derivative financial instruments such as interest rate swaps, caps and collars. The Group monitors interest rate exposure on a monthly basis by currency and business unit, taking into consideration proposed financing and hedging arrangements. The Group’s guideline is to maintain 40% – 60% of its gross borrowings, in fixed rate instruments with an average tenor of less than one to six years. At 31st December 2008 the Group’s interest rate hedging ratio of gross debt was 51% (2007: 49%), with an average tenor of 5.0 years (2007: 2.9 years). The interest rate profile of the Group’s borrowings after taking into account hedging transactions are set out in note 16. Cash flow interest rate risk is the risk that changes in market interest rates will impact cash flows arising from variable rate financial instruments. Borrowings at floating rates therefore expose the Group to cash flow interest rate risk. The Group manages this risk by using forward rate agreements to a maturity of one year, and by entering into interest rate swaps and caps for a maturity of up to seven years. Forward rate agreements and interest rate swaps have the economic effect of converting borrowings from floating rate to fixed rate, caps provide protection against a rise in floating rates above a pre-determined rate. At 31st December 2008, if interest rates had been 100 basis points higher/lower with all other variables held constant, the Group’s profit after tax would have been US$1.1 million (2007: US$0.1 million) higher/lower, and hedging reserves would have been US$7.6 million (2007: US$3.8 million) lower/higher, as a result of fair value changes to cash flow hedges. The sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for both derivative and non-derivative financial instruments in existence at that date. There is no significant variation in the sensitivity analysis as a result of interest rate caps. The 100 basis point increase or decrease represents management’s assessment of a reasonably possible change in those interest rates which have the most impact on the Group, specifically the United States, Hong Kong and UK rates, over the period until the next annual balance sheet date. In the case of effective fair value hedges, changes in fair value caused by interest rate movements balance out in the profit and loss account against changes in the fair value of the hedged item. Changes in market interest rates affect the interest income or expense of non-derivative variable-interest financial instruments, the interest payments of which are not designated as hedged items of cash flow hedges against interest rate risks. As a consequence, they are included in the calculation of profit after tax sensitivities. Changes in the market interest rate of financial instruments that were designated as hedging instruments in a cash flow hedge to hedge payment fluctuations resulting from interest rate movements affect the hedging reserves and are therefore taken into consideration in the equity-related sensitivity calculations. Annual Report 2008 41
Page 1: Mandarin Oriental International Lim
Page 4 and 5: Contents 1 Corporate Overview 3 Cor
Page 6 and 7: Highlights Mandarin Oriental Intern
Page 8 and 9: Chairman’s Statement Overview Des
Page 10 and 11: Group Chief Executive’s Review Bu
Page 12 and 13: Group Chief Executive’s Review Co
Page 14 and 15: Group Chief Executive’s Review Co
Page 16 and 17: Operating Summary There are 23 hote
Page 18 and 19: Development Portfolio Mandarin Orie
Page 20 and 21: International Recognition Continued
Page 22 and 23: Financial Review Continued In 2008,
Page 24 and 25: Financial Review Continued Cash flo
Page 26 and 27: Financial Review Continued Treasury
Page 28 and 29: Directors’ Profiles Continued Lor
Page 30 and 31: Consolidated Balance Sheet as at 31
Page 32 and 33: Consolidated Cash Flow Statement fo
Page 34 and 35: Principal Accounting Policies Conti
Page 44 and 45: Financial Risk Management Continued
Page 46 and 47: Critical Accounting Estimates and J
Page 48 and 49: Notes to the Financial Statements 1
Page 50 and 51: Notes to the Financial Statements C
Page 76 and 77: Principal Subsidiaries, Associates,
Page 78 and 79: Independent Auditor’s Report To t
Page 80 and 81: Responsibility Statement The Direct
Page 82 and 83: Corporate Governance Continued Dire
Page 84 and 85: Corporate Governance Continued Dire
Page 86 and 87: Principal Risks and Uncertainties C
Page 88 and 89: Mandarin Oriental Hotel Group Conta
Page 90 and 91: Sales and Reservations Offices Mand
Page 92:
Mandarin Oriental International Lim
show all

Mandarin Oriental International Limited - Mandarin Oriental Hotel ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?