2020 ITF Annual Report and Financial Statements

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NOTES (CONT.) (FORMING PART OF THE FINANCIAL STATEMENTS) 35. Financial instruments (continued) (d) Cash flow hedges (continued) There was no ineffectiveness during 2020 or 2019 in relation to foreign exchange hedges. (e) Market risk 31 December 2020 Sterling Euro US Dollar Other Total $'000 $'000 $'000 $'000 $'000 Cash and cash equivalents 693 780 11,082 120 12,675 Trade receivables 120 256 4,945 193 5,514 Financial assets measured at FVPL - - 49,658 - 49,658 Trade payables (1,067) (122) (1,398) - (2,587) Forward exchange contracts - - 2,068 - 2,068 Net exposure (254) 914 66,355 313 67,328 31 December 2019 Sterling Euro US Dollar Other Total $'000 $'000 $'000 $'000 $'000 Cash and cash equivalents 1,107 128 3,613 44 4,892 Trade receivables 66 1,693 12,863 264 14,886 Financial assets measured at FVPL - - 61,010 - 61,010 Trade payables (945) (1,452) (4,075) - (6,472) Forward exchange contracts - - 718 - 718 Net exposure 228 369 74,129 308 75,034 Price risk The forward exchange contracts are being used to hedge the foreign currency risk of the firm commitments. The hedge ratio is 1:1 (2019: 1:1). The change in value of the outstanding hedging instruments since 1 January 2020 is similar to the change in value of the hedged items used to determine hedge effectiveness. The foreign currency forwards are denominated in the same currency as the highly probably future expenditure (GBP), therefore the hedge ratio is 1:1. In hedges of future cash flows, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated, or if there are changes in the credit risk of the derivative counterparty or country in which they or the group are based. The group's exposure to equity securities price risk arises from investments held by the group and classified in the balance sheet as fair value through profit or loss. To manage its price risk arising from investments, the group diversifies its portfolio in accordance with the limits set by the group. All the group's investments are publicly traded. A movement of $0.01 in the mark to market valuation would result in a change in the fair value of $294,000 on the Sterling hedges contracts. The group's exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments except derivatives when it is based on notional amounts: Financial risk management The group's financial risk management objective is to control the exposure to foreign exchange fluctuations especially in Sterling and to a lesser extent the Euro and Australian Dollar, against the US Dollar. Sterling: The group has entered into forward currency contracts to buy £29,400,000 (2019: £24,700,000) at an average exchange rate of US$1.2901/£1 for hedges expiring in 2021 and US$1.3207 for hedges expiring in 2022 (2019: US$1.3056/£1 expiring in 2020 and US$1.298 expiring in 2021). These contracts mature at various dates throughout 2021 and 2022 to match budgeted Sterling expenditure. The fair value of these hedges, based on the mark to market valuations of the contracts at the balance sheet date, using prices on that date to purchase the same forward contracts, was an asset of $2,068,000 (2019: asset of $718,000) with a corresponding entry in reserves. Euro: The group did not enter into forward currency contracts to sell Euros in 2020 (2019: nil) due to all significant income contracts being denominated in US Dollars. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the group's income or the value of its holdings of financial instruments. 31

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