2010 Annual Report - Petron

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4. FINANCIAL RISK MANAGEMENT (Continued) a) Market Risk (Continued) (ii) Interest rate risk The Company is exposed to fluctuations in market interest rates as the Company’s operations are financed through a mixture of retained profits and borrowings. The borrowings are generally based on floating interest rates unless opportunities arise for competitive fixed rate financing. The Company’s financing arrangements are typically tracked against the Overnight Policy Rate (OPR) or Kuala Lumpur Interbank Offered Rate (KLIBOR). A rise in the major benchmark rates would result in a higher interest expense and vice versa. The impact of a 10-basis-point change in interest rate affecting the Company’s borrowing would not be material to the Company’s financial statements. b) Credit Risk Credit risk primarily arises from cash and cash equivalents, and credit exposures to trade customers. The Company places its surplus cash with a sister affiliate, ExxonMobil Malaysia Sdn. Bhd., which has been assessed as low risk due to overall strength of ExxonMobil group. From time to time, the Company has deposit placement with independently rated banks with a minimum rating of AAA by local rating agency, or equivalent. The Company manages credit exposure to trade customers by strict adherence to a set of credit policies and procedures whereby customers are thoroughly assessed and risk rated. Daily credit monitoring is an integral part of the credit management process that is administered within the Company’s financial and operating system. Risk evaluations are performed internally including reviews of financial positions, business success indicators, past experience and other factors. Individual risk limits are set based on the internal ratings in accordance with guidelines set by management. Risk categories are established for individual customers based on internal credit guidelines ranging from very low to very high risk. The risk categories are intended to reflect the risk of payment default by a customer and are similar to the rating scales established by external rating agencies. The Company is consistently in a net current liability position as retail sales to service stations are on cash terms whilst purchases, which are mostly intercompany in nature, are on credit terms. This improves the Company’s return on capital employed by effectively reducing its exposure to uncollected trade receivables. c) Liquidity Risk The Company manages liquidity risk by maintaining sufficient cash and cash equivalent balance, third party borrowing facilities and inter-company financing arrangements. The Company reviews its revolving credit facilities on a periodic basis and continues to receive support from both local and foreign financial institutions. The existing Islamic Commercial Paper Program has continued enjoying competitive rates relative to other available arrangements. In addition, the Company has subscribed to the fund pooling arrangements made available by its sister affiliate, ExxonMobil Malaysia Sdn. Bhd. This inter-company financing arrangement allows the Company to either draw cash from the pool in the event of a shortfall, or place cash into the pool in the event of excess, at competitive interest rates on a daily basis. The Company continues to optimise the mix of its borrowing facilities to maximise financing flexibility whilst reducing financing cost. These facilities are short-term in nature unless opportunities arise to secure favorable longer term borrowing facilities. Liquidity risk may also arise if debtors are not able to settle obligations to the Company within the normal credit term. To manage this risk, the Company periodically assesses the financial viability of debtors and may require certain debtors to provide bank guarantees or other security. d) Capital Risk The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to provide returns to shareholders and benefits to other stakeholders. In the future, in order to maintain an appropriate capital structure, the Company may consider adjusting the amount of dividends paid to shareholders, returning capital to shareholders, issuing new shares or selling assets to reduce debt. There were no changes in the Company’s approach to capital management during the year. ANNUAL REPORT & ACCOUNTS 2010 43
ESSO MALAYSIA BERHAD 5. REVENUES 2010 2009 RM'000 RM'000 Related corporations sales 3,145,708 3,443,027 Third party sales 5,252,842 4,563,919 Turnover 8,398,550 8,006,946 Interest income Related parties 2,579 579 Others 112 2 Licence fees 26,204 24,913 8,427,445 8,032,440 Turnover represents the value of goods sold inclusive of subsidies and net of Government duties and taxes. 6. FINANCE COST 2010 2009 RM'000 RM'000 Interest and profit elements on borrowings (Note 20) Related parties 13,293 14,318 Others 7,139 7,877 20,432 22,195 7. PROFIT/(LOSS) BEFORE TAX 2010 2009 RM'000 RM'000 The profit/(loss) before tax is arrived at after (crediting)/charging the following items: Depreciation on property, plant and equipment 58,767 60,505 Amortisation of intangible assets 523 845 Auditors' remuneration - Current 164 164 - Non-recurring 25 - Inventory write-down to net realisable value - 1,560 Cost of inventories recognised as an expense 7,687,855 7,429,880 Provision for impairment and write-off of receivables 234 488 Reversal of provision for impairment of receivables (47) (127) Foreign exchange (other than on borrowings) Realised foreign exchange (gain)/loss (34,668) (12,809) Unrealised foreign exchange (gain)/loss (7,813) 10,997 Rental expense for land and buildings 16,612 15,991 Hire of plant and machinery 184 355 Research and development expense 2,250 4,289 (Gain)/Loss on disposal of property, plant and equipment 109 (294) (Gain)/Loss on disposal of assets held for sale (659) (769) 8. EMPLOYEE BENEFITS EXPENSE 2010 2009 RM'000 RM'000 Wages, salaries and bonus 39,056 39,112 Defined contribution retirement plan - Employees Provident Fund 4,791 4,778 Provision for retirement benefits - Defined benefit retirement plan (Note 18) 3,937 3,803 Separation benefits 58 1,045 Other employee benefits 5,105 6,406 52,947 55,144 44 ANNUAL REPORT & ACCOUNTS 2010
Page 3: FINANCIAL HIGHLIGHTS 2010 2009 % RM
Page 11 and 12: CAPITAL EXPENDITURE RM MILLION TOTA
Page 13 and 14: ESSO MALAYSIA BERHAD Profile of Dir
Page 15 and 16: ESSO MALAYSIA BERHAD Corporate Citi
Page 17 and 18: ESSO MALAYSIA BERHAD Environmental
Page 20 and 21: CORPORATE GOVERNANCE The Board of D
Page 22 and 23: CORPORATE GOVERNANCE (Continued) An
Page 24 and 25: CORPORATE GOVERNANCE (Continued) In
Page 26 and 27: CORPORATE GOVERNANCE (Continued) Tr
Page 29 and 30: Meetings and Minutes (Continued) Th
Page 31 and 32: ESSO MALAYSIA BERHAD STATUTORY INFO
Page 33 and 34: ESSO MALAYSIA BERHAD STATEMENT OF C
Page 35 and 36: ESSO MALAYSIA BERHAD STATEMENT OF C
Page 37 and 38: ESSO MALAYSIA BERHAD NOTES TO THE F
Page 39 and 40: ESSO MALAYSIA BERHAD 1. BASIS OF PR
Page 41 and 42: ESSO MALAYSIA BERHAD 2. SUMMARY OF
Page 43: ESSO MALAYSIA BERHAD 2. SUMMARY OF
Page 47 and 48: ESSO MALAYSIA BERHAD 12. PROPERTY,
Page 49 and 50: ESSO MALAYSIA BERHAD 16. RECEIVABLE
Page 51 and 52: ESSO MALAYSIA BERHAD 18. RETIREMENT
Page 53 and 54: ESSO MALAYSIA BERHAD 23. RESERVES 2
Page 55 and 56: ESSO MALAYSIA BERHAD 29. SUPPLEMENT
Page 57: ESSO MALAYSIA BERHAD INDEPENDENT AU

2010 Annual Report - Petron

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