2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201255. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)Interest rate risk (continued)The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. As theGroup borrowed a USD900 million floating interest loan, the Group entered into and will enter into interestrate swaps with a nominal principal amount of not more than USD900 million at an appropriate timing, inwhich the Group agrees to exchange, at specified intervals, the difference between fixed and variable rateinterest amounts calculated by reference to an agreed-upon notion al principal amount. These swaps aredesignated to hedge underlying debt obligations. At 31 December 2012, after taking into account the effectof the interest rate swaps, approximately 32% (2011: 26%) of the Group’s interest-bearing borrowings boreinterest at fixed rates.The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with allother variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings)and the Group’s equity.Increase/(decrease)in basis pointsIncrease/(decrease)in profitbefore taxRMB’000Increase/(decrease)in equity*RMB’0002012 0.25% (31,593) 5,764(0.25%) 31,593 (5,764)2011 0.25% (34,740) 7,031(0.25%) 34,740 (7,031)* Excluding retained profitsForeign currency riskThe Group has transactional currency exposures. These exposures arise from sales or purchases by operatingunits in currencies other than the units’ functional currencies, where the revenue is predominately in USD,EUR and a certain portion of the bank loans is denominated in USD. The Group entered into forward currencycontracts and tends to accept foreign currency exchange risk avoidance or allocation terms when arrivingat purchase and sale contracts to minimise its transactional currency exposures. The Group takes a rollingforecast on foreign currency revenue and expenses and matches the currency and amount incurred, so asto alleviate the impact on business due to exchange rate fluctuation.427