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Notes to the Financial Statements (cont’d)
For the financial year ended 31 December 2011
38. Financial risk management objectives and policies (cont’d)
(e) Commodity price risk (cont’d)
Fuel is purchased at the spot rate available at time of purchase, which exposes the Group to the impact of changes to
world prices for crude oil. However, the Group continues to assess the potential financial risk associated with rising crude
oil prices and whether the risk requires the use of derivative instruments.
At the reporting date, there was no outstanding forward tin sales contract (2010: Nil).
(f) Market price risk
Market price risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate
because of changes in market prices (other than interest or exchange rates).
The Group is exposed to equity price risk arising from its investment in quoted equity instruments. The quoted equity
instrument outside Malaysia is listed on Australian Securities Exchange in Australia. This instrument is classified as
available-for-sale financial asset.
At the reporting date, if the share price has been 5% higher, with all other variables held constant, the Group’s AFS
reserves in equity would have been RM1,000 higher. If the share price has been 5% lower, with all other variables held
constant, the Group’s profit net of tax would have been RM1,000 lower, arising from impairment loss on the investment
in equity instrument.
(g) Capital management
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and
to sustain future development of the various core businesses. The Group allocates the amount of capital in proportion
to risk, manages the capital structure and makes adjustments to it in the light of changes in economic conditions and
the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust
the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, sell assets or increase
borrowings. The Group monitors the return of capital, which is defined as total shareholders’ equity (excluding noncontrolling
interests), and gearing ratio, which is defined as total borrowings over the tangible networth (total equity less
intangible assets).
The Group seeks to maintain a balance between the higher returns that might be possible with higher level of borrowings
and the advantages and security afforded by a sound capital position.
The Company maintains a Group Gearing ratio (total bank borrowings: tangible networth) of not more than 3.0.
Group
2011 2010
RM’000 RM’000
Share capital 100,000 75,000
Share premium 76,372 1,706
Retained earnings 249,301 199,940
Other reserves 1,073 (8,589)
Reserve of disposal group classified as held for sale – (3,256)
Total shareholders’ equity 426,746 264,801
Non-controlling interests 35,551 42,624
Total equity 462,297 307,425
Less: Intangible assets (Note 17) 1,721 1,547
Tangible networth 460,576 305,878
Total borrowings (Note 28) 563,453 701,040
Gearing ratio as defined above 1.2 2.3
MALAYSIA SMELTING CORPORATION (43072-A) • ANNUAL REPORT 2011 161