DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 64 65 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 65 64 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 The average exchange rates and reporting date exchange rates applied are shown below. AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE REPORTING DATE EXCHANGE RATE 2018 2017 2018 2017 USD 1.2897 1.3254 1.3530 1.3001 THB 0.0397 0.0380 0.0409 0.0382 VND 0.0001 0.0001 0.0001 0.0001 CNY 0.1982 0.1946 0.2045 0.1921 MYR 0.3163 0.3093 0.3352 0.3028 SGD 0.9608 0.9520 0.9923 0.9436 HKD 0.1648 0.1707 0.1724 0.1666 The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at the reporting date are shown below. ASSETS LIABILITIES Consolidated 2018 2017 2018 2017 USD 13,044,387 39,885,279 (61,506,058) (101,805,116) VND 5,299,495 6,666,217 (9,690,246) (11,036,948) CNY 12,133,109 14,514,911 (6,175,459) (13,013,771) MYR 800,324 34,749 (72,731) (82,477) THB 27,070,484 26,675,967 (26,610,202) (25,316,206) SGD 132,179 203,720 (16,382) (13,219) EUR – 6,685 – – HKD 257,378 183,740 (67,324) (55,193) 58,737,356 88,171,268 (104,138,402) (151,322,930) A 5% strengthening of the Australian dollar against the various foreign currencies at the balance date would increase/(decrease) the company’s profit/(loss) after tax by the amounts shown below. The analysis assumes that all other variables remain constant. AUD STRENGTHENED Consolidated % change Effect on profit after tax Effect on profit after tax 2018 2017 USD 5 2,423,084 3,095,992 VND 5 219,538 218,537 CNY 5 (297,883) (75,057) MYR 5 (36,380) 2,386 THB 5 (23,014) (67,988) SGD 5 (5,790) (9,525) EUR 5 – (334) HKD 5 (9,503) (6,427) 2,270,052 3,157,584 NOTE 26. EQUITY – RETAINED PROFITS CONSOLIDATED 2018 2017 $ $ Retained profits at the beginning of the financial year 115,374,413 92,630,958 (Loss)/profit after income tax expense for the year (124,510,815) 30,990,298 Dividends paid (4,113,618) (8,246,843) (Accumulated losses)/retained profits at the end of the financial year (13,250,020) 115,374,413 FRANKING CREDIT BALANCE The dividend recommended after 30 June 2018 is fully unfranked and 100% conduit foreign income. CONSOLIDATED 2018 2017 $ $ Franking credits available for subsequent reporting periods after payment of tax liability based on a tax rate of 30% (2017: 30%) 471,682 471,682 NOTE 27. EQUITY – DIVIDENDS A new dividend policy was announced on 29 August 2017, which stated that the consolidated entity intends to pay out 10–30% of net profit after tax as dividends to shareholders, with the intention to provide regular half-yearly dividend payments, subject to the consolidated entity’s then current working capital requirements and growth plans. Shareholders should note that the payment of dividends is not guaranteed. A dividend of $4,113,618 (0.5 cents per ordinary share) was paid on 20 October 2017. The dividend was 100% conduit foreign income and was unfranked. NOTE 28. FINANCIAL INSTRUMENTS FINANCIAL RISK MANAGEMENT OBJECTIVES The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board. These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity’s operating units. Finance reports to the Board on a monthly basis. MARKET RISK Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rate will affect the consolidated entity’s income. FOREIGN CURRENCY RISK The consolidated entity is exposed to foreign exchange fluctuations in relation to cash generated for working capital purposes, denominated in foreign currencies and net investments in foreign operations, in which the functional currencies are Vietnamese dong and Thai baht. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. An assessment of the sensitivity of the consolidated entity’s exposure to interest rate movements was performed, and was found to be immaterial for the purposes of this disclosure. Exchange rate exposures are managed within approved policy parameters and material movements are not expected. The consolidated entity does not enter into any forward exchange contracts to buy or sell specified foreign currencies. A 5% weakening of the Australian dollar against the various currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.