Yinson Annual Report 2019

Yinson Holdings Berhad ANNUAL REPORT 2019 198 42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities, other than derivatives and put option liability, comprise loans and borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group’s principal financial assets, other than derivatives, include other investments, trade and other receivables, cash and short-term deposits that are derived directly from its operations. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by corporate finance team that advises on financial risks and the appropriate financial risk governance framework for the Group. The corporate finance team provides assurance to the Group’s senior management that the Group’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below. (a) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises two types of risk: interest rate risk and foreign currency risk. Financial instruments affected by market risk include loans and borrowings, short-term deposits, financial assets at fair value through profit or loss and derivatives. The sensitivity analysis in the following sections relate to the positions as at 31 January 2019 and 2018. (i) Interest rate risk Interest rate risk is the risk that the fair valueor future cash flows of a financial instrument will fluctuatebecause of changes inmarket interest rates. TheGroup’s exposure to the risk of changes inmarket interest rates relates primarily to the Group’s loans and borrowings with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and floating rate loans and borrowings. The Group enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and floating rate interest amounts calculated by reference to an agreed-upon notional principal amount. Interest rate sensitivity At the reporting date, if interest rates had been 10 basis points lower/higher, with all other variables held constant, the Group’s profit before tax would have been approximately RM3,200,000 (2018: RM2,877,000) higher/lower, arisingmainly as a result of lower/higher interest expense on floating rate loans and borrowings. (ii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to theGroup’s operating activities and theGroup’s net investments in foreign subsidiaries. The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily RM, USD and Norwegian Krone (“NOK”). The foreign currency in which these transactions are denominated is mainly USD, SGD, Euro, NOK and Ghanaian Cedi. The Group holds cash and cash equivalents denominated in foreign currencies for working capital purposes. The other financial instruments denominated in foreign currencies include financial assets at fair value through profit or loss, trade and other receivables, trade and other payables and loans and borrowings. The Group is also exposed to currency translation risk arising from its net investment in foreign operations in Labuan, Singapore, Norway, Republic of the Marshall Islands and British Virgin Islands. The Group’s investments in its foreign subsidiaries, joint ventures and associates are not hedged as the currency position in these investments are considered to be long-term in nature. For the financial year ended 31 January 2019 Notes to the financial statements (cont’d)