CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 236 237 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 41 FINANCIAL INSTRUMENTS (CONT’D) (iii) Market risk (cont’d) Foreign currency risk (cont’d) Sensitivity analysis A 5% strengthening of the following major currencies against the functional currency of each of the Group’s entities at the reporting date held by the Group and the Company would (decrease)/increase profit and other components of equity before any tax effect by the amounts shown below. Similarly, a 5% weakening would have the equal but opposite effect. This analysis assumes that all other variables, in particular interest rates, remain constant. 2021 2020 Profit before tax Equity Profit before tax Equity $’000 $’000 $’000 $’000 Group United States Dollar 36,040 (18,386) 5,163 (31,294) Singapore Dollar (27,302) – (30,764) 614 Hong Kong Dollar 9,605 – 9,482 – Australian Dollar 5,034 – 6,953 – Sterling Pound (79) (8,599) 27,661 (11,032) Renminbi (26,406) (789) (75,223) (1,396) Japanese Yen 4,877 (1,710) 5,416 (2,098) Euro (1,742) (3,449) 64 (3,909) Thai Baht 8,485 – 9,135 – New Zealand Dollar 1,377 – 637 – Company United States Dollar 24,134 – 5,240 – Hong Kong Dollar 121 – 125 – Japanese Yen 254 – 204 – Sterling Pound (29) – 280 – Renminbi 16,880 – 7,495 – Australian Dollar 862 – 883 – Euro (15) – (16) – Equity price risk The Group and the Company are exposed to equity price changes arising on its quoted equity investments at FVOCI and FVTPL. A change in the underlying equity prices of the quoted investments at the reporting date by 5% for the Group and the Company would impact profit and other components of equity (before any tax effect) by the amounts shown below. Similarly, a change in the revalued net asset values of the unquoted equity investments at FVOCI and a change in the price-to-sales multiple for the unquoted equity investments at FVTPL by 5% for the Group and the Company would impact profit and other components of equity (before any tax effect) by the amounts shown below. This analysis assumes that all other variables remain constant. 41 FINANCIAL INSTRUMENTS (CONT’D) (iii) Market risk (cont’d) Equity price risk (cont’d) Equity investments Increase by 5% Decrease by 5% Increase by 5% Decrease by 5% Group Group Company Company $’000 $’000 $’000 $’000 2021 Quoted equity investments at FVOCI and FVTPL Equity 1,859 (1,859) 1,093 (1,093) Profit before tax 2,445 (2,445) 100 (100) Unquoted equity investments at FVOCI and FVTPL Equity 17,894 (17,894) 16,379 (16,379) Profit before tax 6,523 (6,523) – – 2020 Quoted equity investments at FVOCI and FVTPL Equity 1,745 (1,745) 1,089 (1,089) Profit before tax 3,257 (3,257) 93 (93) Unquoted equity investments at FVOCI and FVTPL Equity 17,837 (17,837) 16,244 (16,244) Profit before tax 4,254 (4,254) – – (iv) Hedge accounting Net investment hedges A foreign currency exposure arises from the Group’s net investments in subsidiaries that have a different functional currency from that of the Company. The risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and the Company’s functional currency, which causes the amount of the net investments to vary in the consolidated financial statements of the Group. The hedged risk in the net investment hedges is the risk of a weakening of the United States Dollar, Euro, Renminbi, Japanese Yen and Sterling Pound against Singapore Dollar that will result in a reduction in the carrying amount of the Group’s net investments in subsidiaries. An economic relationship exists between the hedged net investment and hedging instrument due to the shared foreign currency risk exposure. The Group uses a mixture of foreign currency-denominated debt, forward exchange contracts and cross-currency swaps as hedging instruments. When the hedging instrument is foreign currency-denominated debt, the Group assesses effectiveness by comparing past changes in the carrying amount of the debt that are attributable to a change in the spot rate with past changes in the investment in the foreign operation due to movement in spot rate (the offset method). The Group’s policy is to hedge the net investment only to the extent of the debt principal.
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