NewWorld Development Company Limited
FINANCIAL SECTION
130
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUE ESTIMATION
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest
rate risk and price risk), credit risk and liquidity risk.
The Group has centralised treasury function for all of its subsidiaries except for listed subsidiaries which arrange
their financial and treasury affairs on a stand-alone basis and in a manner consistent with the overall policies of the
Group.
(a) Market risk
(i) Foreign exchange risk
The Group’s operations is mainly in Hong Kong and Mainland China. Entities within the Group are
exposed to foreign exchange risk from future commercial transactions and monetary assets and liabilities
that are denominated in a currency that is not the entity’s functional currency.
The Group currently does not have a foreign currency hedging policy. It manages its foreign currency risk
by closely monitoring the movement of the foreign currency rates and will consider entering into forward
foreign exchange contracts to reduce the exposure should the need arises.
At 30 June 2015, the Group’s entities with functional currency of Hong Kong dollar had aggregate
United States dollar net monetary liabilities of HK$7,428.9 million (2014: HK$8,511.2 million). Under the
Linked Exchange Rate System in Hong Kong, Hong Kong dollar is pegged to the United States dollar,
management therefore considers that there are no significant foreign exchange risk with respect to the
United States dollar.
At 30 June 2015, the Group’s entities with functional currency of Hong Kong dollar had aggregate
Renminbi net monetary assets of HK$8,783.6 million (2014: HK$3,701.0 million). If Hong Kong dollar had
strengthened/weakened by 5% (2014: 5%) against Renminbi with all other variables unchanged, the
Group’s profit before taxation would have been HK$439.2 million (2014: HK$185.0 million) lower/higher.
At 30 June 2015, the Group’s entities with functional currency of Renminbi had aggregate United States
dollar net monetary liabilities of HK$6,670.9 million (2014: net monetary assets of HK$1,397.4 million).
If Renminbi had strengthened/weakened by 5% (2014: 5%) against United States dollar with all other
variables unchanged, the Group’s profit before taxation would have been HK$333.5 million higher/lower
(2014: HK$69.9 million lower/higher).
At 30 June 2015, the Group’s entities with functional currency of Renminbi had aggregate Hong Kong
dollar net monetary liabilities of HK$12,859.8 million (2014: HK$14,136.0 million). If Renminbi had
strengthened/weakened by 5% (2014: 5%) against Hong Kong dollar with all other variables unchanged,
the Group’s profit before taxation would have been HK$643.0 million (2014: HK$706.8 million) higher/
lower.
This sensitivity analysis ignores any offsetting foreign exchange factors and has been determined
assuming that the change in foreign exchange rates had occurred at the end of the reporting period.
The stated changes represent management’s assessment of reasonably possible changes in foreign
exchange rates over the period from the end of the reporting period until the end of next reporting period.
There are no other significant monetary balances held by group companies at 30 June 2015 and 2014
that are denominated in a non-functional currency. Currency risks as defined by HKFRS 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.
