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157
Notes to the Financial Statements
31 December 2015
33 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Market risk (continued)
(i)
Foreign exchange risk (continued)
The sensitivity of the Group’s and of the Company’s profit before tax for the financial year and equity to a reasonably possible change
in the USD exchange rate against the Group’s and the Company’s functional currency, RM, with all other factors remaining constant
and based on the composition of assets and liabilities at the reporting date are set out as below.
Impact on profit before tax
for the financial year
Impact on equity
(1)
Group
Group
Company
2015
RM’000
2014
RM’000
2015
RM’000
2014
RM’000
2015
RM’000
2014
RM’000
USD/RM
- strengthened 5% (2014: 5%)
(34,769)
(31,845)
8,437
6,785
5,655
6,785
- weakened 5% (2014: 5%)
34,769
31,845
(8,437)
(6,785)
(5,655)
(6,785)
Note:
(1)
Represents cash flow hedging reserve
The impacts on profit before tax for the financial year are mainly as a result of foreign currency gains/losses on translation of USD
denominated receivables, deposits, bank balances and unhedged payables. For USD borrowings and payables in a designated hedging
relationship, as these are effectively hedged, the foreign currency movements will not have any impact on the statement of profit or loss.
(ii)
Interest rate risk
The Group’s and the Company’s interest rate risk arises from deposits with licensed banks, deferred payment creditors, borrowings,
loan from a related party and inter-company loans carrying fixed and variable interest rates. The objectives of the Group’s and of the
Company’s interest rate risk management policies are to allow the Group and the Company to effectively manage the interest rate
fluctuation through the use of fixed and floating interest rates debt and derivative financial instruments. The Group and the Company
adopt a non-speculative stance which favours predictability over interest rate fluctuations. The interest rate profiles of the Group’s
and of the Company’s borrowings are also regularly reviewed against prevailing and anticipated market interest rates to determine
whether refinancing or early repayment is warranted.
The Group and the Company manage their cash flow interest rate risk by using cross currency interest rate swap contracts and
interest rate swap contracts. Such swaps have the economic effect of converting certain borrowings from floating rates to fixed rates.
