MSM Malaysia Holdings Berhad Annual Report 2020

4 FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Capital risk management policies The Group’s and Company’s primary objectives on capital management policies are to safeguard the Group’s and Company’s ability to maintain healthy capital ratios to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group and Company manage its capital structure and make adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group and Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the financial year ended 31 December 2020 and 31 December 2019. The Group considers its debts and equity attributable to owners of the Company as capital and monitor capital using gearing ratio. This ratio is calculated as net debt divided by total capital of the Group and Company. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated statement of financial position), lease liabilities and loan due to a related company less deposits, cash and bank balances. At Company level, net debt also includes loan due to a subsidiary. Total capital is calculated as ‘equity attributable to owners of the Company as shown in the consolidated statement of financial position plus the net debt of the Group and Company. The gearing ratio analysis for the Group and the Company are as disclosed below: Group Company 2020 2019 2020 2019 RM’000 RM’000 RM’000 RM’000 Net debt 763,273 950,335 672,703 803,130 Equity attributable to owners of the Company 1,581,526 1,657,531 1,718,063 1,674,986 Total capital 2,344,799 2,607,866 2,390,766 2,478,116 Gearing ratio 33% 36% 28% 32% The decrease in the Company’s gearing ratio in 2020 is due to full repayment of term loan and overall lower borrowings level. (c) Fair value estimation Financial instruments that are measured in the statement of financial position at fair value are disclosed by the following fair value measurement hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). • Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). MSM MALAYSIA HOLDINGS BERHAD Annual Repor t 2020 172 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020 CHAIRMAN’S STATEMENT DELIVERING VALUE MSM OVERVIEW MANAGEMENT DISCUSSION & ANALYSIS GROUP FINANCIAL REPORT