Change - S P Setia Berhad

96
Annual report 2008
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 2008
2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s activities are exposed to a variety of financial risks, including interest rate risk, credit risk, market risk, liquidity and
cash flow risks. The Group’s overall financial risk management objective is to minimise potential adverse effects on the financial
performance of the Group.
Financial risk management is carried out through risk review, internal control systems and adherence to Group financial risk
management policies. The Board regularly reviews these risks and approves the policies covering the management of these risks.
The Group does not trade in derivative instruments.
(a)
Interest rate risk
The Group is exposed to interest rate risk which is the risk that a financial instrument’s value will fluctuate as a result of
changes in market interest rates. Exposure to interest rate risk relates primarily to the Group’s deposits and interest-bearing
borrowings.
Surplus funds are placed with licensed financial institutions to earn interest income based on prevailing market rates. The
Group manages its interest rate risks by placing such funds on short tenures of 12 months or less.
The Group’s policy is to borrow principally on a floating rate basis but to retain a proportion of fixed rate debt. The objective
of a mix of fixed and floating rate borrowings is to reduce the impact of a rise in interest rates and to enable savings to
be enjoyed if interest rates fall. The Group does not generally hedge interest rate risks. The Group has a policy to ensure
that interest rates obtained are competitive.
(b)
Credit risk
Credit risk arises from the possibility that a counter party may be unable to meet the terms of a contract in which the
Group has a gain position.
The Group minimises and monitors its credit risk by dealing with credit worthy counter-parties and applying credit approval
controls for material contracts. If necessary, the Group may obtain collaterals from counter-parties as a means of mitigating
losses in the event of default.
In respect of trade receivables arising from the sale of development properties, the Group mitigates its credit risk by
maintaining its name as the registered owner of the development properties until full settlement by the purchaser of the selffinanced
portion of the purchase consideration and upon undertaking of end-financing by the purchaser’s end-financier.
(c)
Market risk
The Group’s principal exposure to market risk arises from changes in value caused by movements in market prices of its
quoted investments. The risk of loss is minimised via thorough analyses before investing and continuous monitoring of the
performance of the investments. The Group optimises returns by disposing of investments after thorough analyses.
Common to all business, the overall performance of the Group’s investments is also driven externally by global and domestic
economies that are largely unpredictable and uncontrollable.
(d)
Liquidity and cash flow risks
The Group seeks to ensure all business units maintain optimum levels of liquidity at all times, sufficient for their operating,
investing and financing activities.
Therefore, the policy seeks to ensure that each business unit, through efficient working capital management (i.e. inventory,
accounts receivable and accounts payable management), must be able to convert its current assets into cash to meet all
demands for payment as and when they fall due.
Owing to the nature of its businesses, the Group always maintain sufficient credit lines available to meet its liquidity
requirements while ensuring an effective working capital management within the Group.