Financial Statements - Mewah Group

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MEWAH INTERNATIONAL INC. ANNUAL REPORT 2011 Notes to the Financial Statements For the financial year ended 31 December 2011 32. Financial risk management (continued) (a) Market risk (continued) (i) Currency risk (continued) With all other variables including tax rate being held constant, the effects arising from the net financial assets/ liabilities position will be as follows: 2011 2010 Change Profit after tax Change Profit after tax % US$’000 % US$’000 Group USD against SGD - Strengthened 5% 722 5% (8,481) - Weakened 5% (722) 5% 8,481 USD against Ringgit - Strengthened 5% (13,350) 5% (4,038) - Weakened 5% 13,350 5% 4,038 Company USD against SGD - Strengthened 5% (3,887) 5% (8,376) - Weakened 5% 3,887 5% 8,376 USD against Ringgit - Strengthened 5% 2 5% (862) - Weakened 5% (2) 5% 862 (ii) Cash flows and fair value interest rate risks Cash flows interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. The Group’s exposure to interest rate risk arises primarily from their borrowings and deposits placed with creditworthy licensed banks and financial instituitions. 106
Building Capabilities Notes to the Financial Statements For the financial year ended 31 December 2011 32. Financial risk management (continued) (a) Market risk (continued) (ii) Cash flows and fair value interest rate risks (continued) The Group’s policy is to enter into variable interest rates borrowings. As most of the Group’s borrowings are shortterm and trade related, accordingly, the Group has minimum cash flows interest rate exposure risk. The Group’s borrowings were denominated mainly in Ringgit and USD. As at 31 December 2011, profit after tax for the financial year would have been US$174,000 (2010: US$79,000) lower or higher if market interest rates had been 50 basis points higher or lower with all other variables held constant. (iii) Commodity price risk The Group is exposed to fluctuations in the prices of agri-commodities it deals in, including crude palm oil and palm oil products prices. The Group minimises the risk arising from such fluctuations by entering into commodities forward contracts and futures contracts. The Group has not adopted hedge accounting. In the course of entering into these contracts, the Group may be exposed to the inherent risk associated with trading activities conducted by its personnel. The Group has in place a risk management system to manage such risk exposure. As at 31 December 2011, if the commodity prices increase or decrease by 5% and other variables held constant, the Group’s profit after tax would have been US$6,457,000 (2010: US$6,305,000) lower or higher respectively, arising as a result of the change in fair value of the commodities forward and futures contracts. (b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The major classes of financial assets of the Group are trade and other receivables and bank deposits. For trade and other receivables, the Group adopts the policy of dealing only with customers of appropriate credit history, and obtaining sufficient collateral or buying credit insurance where appropriate to mitigate credit risk. For other financial assets, the Group adopts the policy of dealing only with high credit quality counterparties. 107
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Financial Statements - Mewah Group

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