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Management’s Discussion and Analysis cont’dGROUP FINANCIAL REVIEWRISK MANAGEMENT cont’dFinancial/Market Risk Management• The Group’s operations which have expanded substantially in recent years expose it to a variety of financial risks, includingforeign exchange risk, interest rate risk, market risk (including commodity price risk), credit risk, liquidity and cashflow risk.• The Group’s overall financial risk management objective is to ensure that the Group creates value for its shareholders whilstminimising potential adverse effects on its financial performance and positions. Main consideration is on potential impact on risksto cash flows.• The Group addresses the various financial risks exposure by taking pro-active measures within our established risk managementframework and clearly defined guidelines that are approved by the Board. In this respect, the Group enters into forward contractsand exchange-traded agricultural commodity futures as well as commodity swap to hedge our inventories, sale and purchasecommitments. The effectiveness of hedges are periodically reviewed and limits for mandatory “cut loss” are set to limit commodityprice exposures for all relevant operations.• Besides, the Group also enters into interest rate derivative instruments with the objective of minimising overall cost of borrowingsover the tenure of the underlying borrowings. An appropriate mix of fixed and floating rates are taken after giving dueconsideration to current fixed rates level, forward scenario analysis and potential net cash flow fluctuation.• Whenever possible, the Group favours taking a “natural hedge” approach as for instance, to have the same currency base inthe risk management of its foreign currency denominated assets and liabilities and in respect of income and expenditure as forexample, to have USD liabilities as hedge against the Group’s USD denominated palm oil income stream.• Whenever appropriate, we also enter into forward foreign currency contracts to limit the Group’s exposure to fluctuation inforeign exchange rates with respect to our foreign currency denominated assets and liabilities as well as committed sales andpurchases of commodity and other products.25ANNUAL REPORT 2007IOI Corporation Berhad
Management’s Discussion and Analysis cont’dGROUP FINANCIAL REVIEWRISK MANAGEMENT cont’dFinancial/Market Risk Management cont’d• Credit risks and counter party risks are evaluated and managed at the level of the respective business units within the Group’sprescribed framework.The economic intent and impact of some of these risk management strategies may not be apparent from the accounts as the mannerand timing in which these transactions are recognised and reflected in the accounts are in accordance with the requirements ofapproved accounting standards. In such instances, the Group takes the view that the underlying economic reality and objective shouldtake precedent over reported accounting impact, when deciding if a hedge transaction is to be taken i.e. economic substance is moreimportant than accounting form for risk management decision making.For more disclosures on the Group’s financial risk management, refer to Note 45 of the financial statements included in this AnnualReport.Sensitivity AnalysisThe main market risks impacting the profitability of the Group are commodity price risks and foreign exchange risks. The approximateimpact that movements in palm oil prices, downstream product margins and currency exposures could have on its operating profit forFY2008, based on its operating conditions, but excluding the impact of hedged transactions are as tabulated below:Impact (If unhedged)Change of RM100 per MT in CPO price± RM70 millionChange of 10% in product margin over FY2007for refining, oleochemicals, speciality fats± RM73 million10% change in the USD/RM exchange rate ± RM53 million10% change in the Euro/RM exchange rate ± RM90 millionThe net impact of exchange rate movements on the operating profit of the Group is relatively low mainly because of natural hedgepositions.IOI Corporation BerhadANNUAL REPORT 2007 26
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Other InformationCOMPOSITION OF SHA
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RECURRENT RELATED PARTY TRANSACTION
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Senior Management TeamGroup Chief E
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Global PresenceNORTH AMERICA• USA
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Location of Operations in MalaysiaP
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Corporate CalendarNov 2006• IOI P
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Corporate Calendar cont’dMarch200
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Social ContributionSep 2006• Yaya
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Directors’ ReportThe Directors of
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Directors’ Report cont’dUSD310
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Group PropertiesA. PLANTATION ESTAT
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Group Properties cont’dA. PLANTAT
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Group Properties cont’dB. DEVELOP
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Group Properties cont’dC. INVESTM
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Notice of Annual General MeetingNOT
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Shareholders Information cont’das
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fold herestampThe Company Secretary
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