ACCOUNTABILITY | FINANCIAL STATEMENTS 299 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 January 2024 41. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities, other than derivatives, contract liabilities and put option liability, comprise loans and borrowings, lease liabilities, 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 include finance lease receivables, trade and other receivables, cash and short-term deposits and contract assets 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 the corporate finance team that advises on financial risks and the appropriate financial risk governance framework for the Group. The corporate finance team assists the Group’s senior management to ensure 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 and derivatives. (i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market 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 interest rate amounts calculated by reference to an agreed-upon notional amount. For the financial years ended 31 January 2024 and 2023, the Group’s borrowings at floating rates were primarily denominated in USD. The exposure of the Group’s borrowings to interest rate changes at the end of the financial year was as follows: 2024 2023 RM million % of total loans RM million % of total loans Variable rate borrowings: - USD SOFR/LIBOR 11,351 70% 7,118 74% - Other interest rate benchmarks 1,665 10% 1,462 15% 13,016 80% 8,580 89% Fixed rate borrowings 3,303 20% 1,004 11% 16,319 100% 9,584 100% The percentage of total loans shows the proportion of loans that are currently at fixed rates or variable rates in relation to the total amount of borrowings.
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