Group Financial Statements/Auditors' Report - Pumpkin Patch ...

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PUMPKIN PATCH LIMITED & SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 31 JULY 2010 PUMPKIN PATCH LIMITED & SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 31 JULY 2010 25 FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts and options and interest rate swaps to manage certain risk exposures. Derivatives are exclusively used for economic hedging purposes (ie not as trading or other speculative instruments), however not all derivative financial instruments qualify for hedge accounting. Risk management is carried out based on policies approved by the Board of Directors. The Group treasury policy provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk. The Parent is not directly exposed to any significant financial risk. (iii) Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and foreign exchange risk. A sensitivity of 10% for foreign exchange risk has been selected. Despite the recent volatility in the currency markets over the past 12 months, an overall sensitivity of 10% is considered to be reasonable based upon the exchange rate volatility observed on a historic basis for the preceding five year period and market expectation for potential future movements. A sensitivity of 1% has been selected for interest rate risk. The 1% sensitivity is based on reasonably possible changes over a financial year, using the observed range of historical data for the preceding five year period. Amounts are shown net of income tax. All variables other than applicable interest rates and exchange rates are held constant. (A) MARKET RISK (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States dollar, the British pound and Australian dollar. The purpose of the Group’s foreign currency risk management activities is to protect the Group from exchange rate volatility with respect to the New Zealand dollar net cash movements resulting from the sale of products in foreign currencies to foreign customers and the purchase of products and raw materials in foreign currencies from foreign suppliers. The Group enters into foreign currency option contracts and forward foreign currency contracts within policy parameters to manage risk associated with anticipated sales or costs denominated principally in United States dollars, British pounds and the Australian dollar. The terms of the foreign currency option contracts and the forward foreign currency contracts do not exceed three years. These anticipated sales or costs qualify as highly probable forecasts for hedge accounting purposes. Refer to note 10 which shows the forward foreign exchange contracts and options held by the Group as derivative financial instruments at balance date. A sensitivity analysis of foreign exchange rate risk on the Group’s financial assets and liabilities is provided in the table below. (ii) Cash flow and fair value interest rate risk The Group’s main interest rate risk arises from floating rate borrowings drawn down under bank debt facilities. When deemed appropriate, the Group manages floating interest rate risk by using floating to fixed interest rate swaps. Interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. Refer to note 10 for notional principal amounts and valuations of interest rate swaps outstanding at balance date. A sensitivity analysis of interest rate risk on the Group’s financial assets and liabilities is provided in the table below. Refer to Note 16 for further details of the Group’s borrowings. 20 years young 87
PUMPKIN PATCH LIMITED & SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 31 JULY 2010 PUMPKIN PATCH LIMITED & SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 31 JULY 2010 25 FINANCIAL RISK MANAGEMENT continued Interest rate risk Foreign exchange risk ‐1% +1% ‐10% +10% Carrying amount Profit Equity Profit Equity Profit Equity Profit Equity Consolidated sensitivity analysis $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 31 July 2010 Financial assets Cash and cash equivalents 6,945 (9) - 9 - 725 - (654) - Trade receivables 10,590 - - - - 1,219 - (896) - Sales tax receivable 40 - - - - (41) - 33 - Employee share scheme receivable 203 - - - - - - - - Other receivables 1,783 - - - - 49 - (40) - Derivative financial instruments 7,485 - - - - - (29,507) - 24,186 Financial liabilities Trade payables 12,972 - - - - (1,209) - 989 - Employee benefits 6,475 - - - - (369) - 302 - Interest bearing liabilities 33,000 330 - (330) - - - - - Derivative financial instruments 25,550 - - - - - 20,334 - (16,500) 321 - (321) - 374 (9,173) (266) 7,686 31 July 2009 Financial assets Cash and cash equivalents 12,563 (37) - 37 - 992 - (811) - Trade receivables 12,052 - - - - 1,331 - (1,089) - Employee share scheme receivable 215 - - - - - - - - Other receivables 986 - - - - 25 - (21) - Derivative financial instruments 6,785 - - - - 211 (3,889) (48) 3,169 Financial liabilities Trade payables 7,471 - - - - (545) - 446 - Sales tax payable 898 - - - - (183) - 149 - Employee benefits 6,484 - - - - (374) - 306 - Interest bearing liabilities 31,000 310 - (310) - - - - - Derivative financial instruments 23,722 (75) - 73 - - (598) - 613 198 - (200) - 1,457 (4,487) (1,068) 3,782 Foreign exchange risk ‐10% +10% Carrying amount Profit Equity Profit Equity Parent sensitivity analysis $’000 $’000 $’000 $’000 $’000 31 July 2010 Financial assets Cash and cash equivalents 31 1 - (1) - Trade Receivables 2 - - - - Amounts owed from subsidiaries 165,450 3,181 - (2,602) - Employee share scheme receivable 203 - - - - Other receivables 158 - - - - Financial liabilities Trade payables 549 - - - - Amounts owed to subsidiaries 207,221 - - - - Sales tax payable 519 - - - - Employee benefits 2,388 - - - - Interest bearing liabilities 28 - - - - 3,182 - (2,603) - 31 July 2009 Financial assets Cash and cash equivalents 38 - - - - Trade Receivables 2 - - - - Amounts owed from subsidiaries 126,780 3,272 - (2,677) - Employee share scheme receivable 215 - - - - Other receivables 631 - - - - Financial liabilities Trade payables 984 - - - - Amounts owed to subsidiaries 179,867 - - - - Sales tax payable 856 - - - - Employee benefits 2,422 - - - - Interest bearing liabilities 319 - - - - 3,272 - (2,677) - The Parent is not sensitive to any interest rate risk, nor is it sensitive to foreign exchange risk on amounts owed to its subsidiaries. 20 years young 89
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