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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.
97 S P <strong>Setia</strong> <strong>Berhad</strong> Group NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2008 3. propertY, PLANT AND EQUIPMENT Group 2008 Office ------- Freehold -------- Plant, equipment, Capital machinery, renovations, workcrane furniture and Motor in- Land Buildings and trucks fittings vehicles progress Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Cost At 1.11.2007 2,886 27,128 13,183 27,339 31,751 15,925 118,212 Additions 924 15,780 145 5,492 4,201 74,360 100,902 Disposals – – (221) (65) (3,068) – (3,354) Deemed disposal of a subsidiary company – – – (114) – – (114) Exchange differences – – 5 9 1 – 15 Write-offs – (6,204) (746) (718) (313) – (7,981) Reclassification – 5,950 – – – (5,950) – Transfer to investment properties upon completion (see note 4) 152 – – – – (68,242) (68,090) At 31.10.2008 3,962 42,654 12,366 31,943 32,572 16,093 139,590 Accumulated depreciation At 1.11.2007 – 8,389 11,307 17,188 18,143 – 55,027 Charge for the year – 1,860 592 3,392 3,961 – 9,805 Disposals – – (100) (35) (3,062) – (3,197) Deemed disposal of a subsidiary company – – – (45) – – (45) Exchange differences – – – 1 – – 1 Write-offs – (717) (742) (678) (90) – (2,227) At 31.10.2008 – 9,532 11,057 19,823 18,952 – 59,364 Net carrying amount At 31.10.2008 3,962 33,122 1,309 12,120 13,620 16,093 80,226
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