ANNUAL REPORT 2025 151 NOTES TO THE FINANCIAL STATEMENTS 2 Basis of preparation and material accounting policy information (Continued) (v) Derivative fi nancial instruments and hedging activities (Continued) Derivatives designated as hedging instruments to hedge against the cash fl ows attributable to recognised assets or liabilities may qualify as cash fl ow hedges. The Group enters into (i) cross currency swap contracts to swap certain fi xed interest rate United States dollar debts to fi xed interest rate Hong Kong dollar debts and (ii) interest rate swap contracts to swap certain fl oating interest rate United States dollar debts to fi xed interest rate United States dollar debts to hedge against the foreign currency and interest rate risk. The Group excludes foreign currency basis spread of these cross currency swaps in the hedge designation. The change in fair value of the foreign currency basis spread (to the extent it relates to the hedged item) is recognised in other comprehensive income and is accumulated in a separate costs of hedging reserve under equity. The amount would be amortised to profi t or loss on a systematic and rational basis. Changes in the fair value relating to the eff ective portion of derivative contracts designated as hedging instruments qualifying as cash fl ow hedges are recognised in other comprehensive income and accumulated under the heading of hedging reserve. The gain or loss relating to the ineff ective portion is recognised in the income statement. Amounts accumulated are removed from hedging reserve and costs of hedging reserve and recognised in the income statement in the periods when the hedged derivative contract matures. Derivatives that do not qualify for hedge accounting under HKFRS 9 will be accounted for with the changes in fair value being recognised in the income statement. (w) Pension plans Pension plans are classifi ed into defi ned benefi t and defi ned contribution plans. Pension costs for defi ned benefi t plans are assessed using the projected unit credit method. Under this method, the cost of providing pensions is charged to income statement so as to spread the regular cost over the future service lives of employees in accordance with the advice of the actuaries who carry out a valuation of the plans. The pension obligation is measured as the present value of the estimated future cash outfl ows using interest rates determined by reference to market yields at the end of the reporting period based on high quality corporate bonds with currency and term similar to the estimated term of benefi t obligations. Remeasurements arising from defi ned benefi t plans are recognised in other comprehensive income in the year in which they occur and refl ected immediately in pension reserve. Remeasurements comprise actuarial gains and losses, the return on plan assets (excluding amounts included in net interest on the net defi ned benefi t liability/ asset) and any change in the eff ect of the asset ceiling (excluding amounts included in net interest on the net defi ned benefi t liability/asset). The contributions to the defi ned contribution plans are charged to the income statement in the year incurred. Pension costs are charged against the income statement within staff costs. The pension plans are generally funded by the relevant Group companies taking into account the recommendations of independent qualifi ed actuaries and by payments from employees for contributory plans. (x) Foreign exchange The consolidated fi nancial statements are presented in Hong Kong dollars, which is same as the documentation of functional currency of HPH Trust. Transactions in foreign currencies are converted at the rates of exchange ruling at the transaction dates. Monetary assets and liabilities are translated at the rates of exchange ruling at the end of the reporting period. The fi nancial statements of foreign operations (i.e. subsidiary companies, associated companies, joint ventures or branches whose activities are based or conducted in a country or currency other than those of the Trust) are translated into Hong Kong dollars using the year end rates of exchange for the statement of financial position items and the average rates of exchange for the year for the income statement items. Exchange diff erences are recognised in other comprehensive income and accumulated under the heading of exchange reserve. Exchange diff erences arising from foreign currency borrowings and other currency instruments designated as hedges of such overseas investments, are recognised in other comprehensive income and accumulated under the heading of exchange reserve.
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