Eng - IOI Group

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