Annual Report 2010 - Leeden Limited

Notes to the Financial Statementsfor the Financial Year ended 31 December 2010Leeden Limited Annual Report 201037. Financial risk management objectives and policies (cont’d)(a)Interest rate risk (cont’d)The Group’s exposure to changes in interest rates relates primarily to the Group’s bank borrowings and hirepurchase creditor. The Group’s policy is to obtain the most favourable interest rates available without increasing itsforeign currency exposure.To manage this risk, the Group also enters into interest rate swap to minimise the fluctuation of interest costs dueto floating rate debts. The Group manages interest costs in alignment with the market expectation of future ratesmovement. The Group does not enter into interest rate swap in a decreasing rate environment.Sensitivity analysis for interest rate riskAt the balance sheet date, if SGD and MYR interest rates had been 2 (2009: 31) and 75 (2009: 125) basis pointsrespectively lower/higher with all other variables held constant, the Group’s profit net of tax would have been$7,000 (2009: $114,000) and $97,000 (2009: $121,000) respectively higher/lower, arising mainly as a result oflower/higher interest expense on floating rate loans and borrowings. The assumed movement in basis points forinterest rate sensitivity analysis is based on the currently observable market environment, showing a significantlyhigher volatility as in prior years.Surplus funds are placed with major financial institutions.(b)Foreign currency riskThe Group has transactional currency exposures arising from sales or purchases that are denominated in acurrency other than the respective functional currencies of Group entities, primarily SGD and Malaysian Ringgit(MYR). The foreign currencies in which these transactions are denominated are mainly United States Dollars (USD).Approximately 18% (2009: 17%) of the Group’s sales are denominated in foreign currencies, whilst approximately41% (2009: 61%) of costs are denominated in the respective functional currencies of the Group entities. TheGroup enters into forward currency contracts to minimise the currency exposures.The Group seeks to maintain a natural hedge through the matching of liabilities against assets in the samecurrency. Where appropriate, the Group enters into short term forward contracts and foreign exchange derivativeinstruments to hedge against expected foreign currency exposure.The Group is also exposed to currency translation risk arising from its net investments in foreign operations,including Malaysia, People’s Republic of China (“PRC”) and Thailand. The Group’s net investments in Malaysia, PRCand Thailand are not hedged as currency positions in MYR, RMB and Thai Baht are considered to be long-term innature.Included in trade debtors of the Group are amounts of approximately $7,110,000 (2009: $4,629,000) denominatedin USD.Included in trade creditors of the Group are amounts of approximately $7,329,000 (2009: $6,397,000), $783,000(2009: $1,542,000) and $210,000 (2009: $410,000) denominated in USD, EUR and AUD respectively.The Group also holds cash and cash equivalent denominated in foreign currencies for working capital purposes. Atthe balance sheet date, such foreign currency balances (mainly in USD) amount to $6,934,000 (2009: $5,223,000)for the Group.93