Osim FR 050407.indd

Notes to the Financial Statements - 31 December 2006 (cont’d)43. Financial instruments (cont’d)d) Derivative financial instruments and hedging activities (cont’d)ii)Fair value hedgesHedge of financial liabilitiesAs at 31 December 2006, the Group held forward currency contracts (entered into during 2006) designated ashedges of the currency risk related to recognised fi nancial liabilities.The terms of these contracts have been negotiated to match the terms of the fi nancial liabilities.These derivatives were assessed to be highly effective and the change in fair value of the fi nancial liability attributableto the hedged risk, amounting to $322,000 (2005: $1,317,000), is recognised as a liability at 31 December 2006with a corresponding loss recognised in the profi t and loss account. This loss has been offset by an equivalent gainon the hedged risks.iii)Other hedges for which hedge accounting is not appliedAs at 31 December 2006, the Group has entered into two interest rate swaps to hedge the term loan. The notionalamount of each swap is $40,000,000 (2005: $50,000,000) whereby it pays fi xed interest rate and receives variablerate on the notional amount.As at 31 December 2006, the Group also entered into an interest rate swap to hedge a portion of the Group’s billspayables for working capital. The notional amount of this swap is $20,000,000 (2005: $20,000,000).The fair value of these derivatives as at 31 December 2006 amounts to $910,000 (2005: $738,000) has beenrecognised in the balance sheet as a fi nancial asset and as income in the profi t and loss account for the year.Notes to the Financial Statements 168Annual Report 2006