Annual Report 2012 - IOI Group

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42. FINANCIAL INSTRUMENTS (Continued)42.3 Price fluctuation risk (Continued)42.3.3 Sensitivity analysis42.4 Credit riskMajority of the Group’s exposure to price volatility was mainly derived from palm products. If the price of palmproducts changes by 7.5%, profit or loss for the Group and the Company would have equally increased or decreasedby approximately RM179 million (2011 – RM163 million) and RM10 million (2011 – RM9 million) respectively.No sensitivity analysis for other investments was prepared at the end of the reporting period as the Group and theCompany did not have significant exposure to other investments.The Group’s credit risk exposure is mainly related to external counter-party credit risk on monetary financial assets and tradecredits. Credit risk is managed at the business unit level, but macro Group-wide policies on the granting of credit and creditcontrol are issued and monitored centrally, such as those relating to credit risk concentration, adequacy of formal creditrating and evaluation of counter parties, credit impairment and unit level credit control performance.Credit risk from monetary financial assets is generally low as the counter-parties involved are strongly rated financialinstitutions or authorised exchanges. The Group does not extend any loans or financial guarantees to third parties except forits own subsidiaries and jointly-controlled entities.The Group’s objective on credit risk management is to avoid significant exposure to any individual customer or counter partyand to minimise concentration of credit risk.42.4.1 Risk management approachCredit risk or financial loss from the failure of customers or counter parties to discharge their financial andcontractual obligations from trade credits is managed through the application of credit approvals, credit limits,insurance programmes and monitoring procedures on an on-going basis. If necessary, the Group may obtaincollateral from counter parties as a means of mitigating losses in the event of default.The Group’s credit risk varies with the different classes of counter-parties as outlined below:i. Plantation and resource-based manufacturingMost of the upstream sales are intragroup to downstream “resource based manufacturing”. Upstream sales toexternal parties are mainly payment on delivery and/or secured with trade-financing documentation. Resourcebased manufacturing sales are mostly to external parties with credit terms ranging from 30 to 90 days – and acrossglobal markets of varying sovereign risk. The Group also engages in forwards sales (and forward procurement offeedstock). Such forward contracts may have positive fair valuation giving rise to counter-party default risk.Policies and procedures(a)(b)(c)Customers are assessed for credit and sovereign nation risks (where applicable) on both quantitative andqualitative elements prior to the approval of credit exposure and limits. In this regard, external creditrating services such as Standard & Poor or Dun & Bradstreet are used. Where customers are approved forforward physical contracts, limits on contractual forward periods and value are established. Regularreviews are made;Credit risk authority is decentralised to the respective entities’ credit committee – but supervised centrallyat the corporate level; andCredit exposure is monitored on limits and ageing, managed and reviewed periodically. Customers withemerging credit problems are identified early and remedial actions are taken promptly to minimisefurther exposure and to restore past due status.Annual Report 2012IOI CORPORATION BERHAD 231
NOTES TO THEFINANCIAL STATEMENTS42. FINANCIAL INSTRUMENTS (Continued)42.4 Credit risk (Continued)42.4.1 Risk management approach (Continued)i. Plantation and resource-based manufacturing (Continued)Collateral and credit enhancementIn general, a combination of:(a)(b)(c)(d)Corporate guarantee may be required for globe-wide credit facilities for multinational corporations;Cash deposits/advance may be required for certain customers or orders;Transactional documentation (i.e. Letter of Credit or Cash against Document) for export sales; andCredit insurance coverage (up to certain established limits) for downstream Oleo-Chemical and SpecialtyFats’ credit sales – leaving some credit exposure on declined coverage and those beyond approved limits.ii.PropertyGenerally, property units sold are progressively invoiced and settled by end-buyers’ financiers posing minimalcredit risk. Property investment entails the hospitality sub-segment for which sales are generally cash settled;and the rental property sub-segment which poses a certain degree of collection risk in correlation with themacroeconomic environment.Policies and procedures(a)(b)(c)(d)Tail-end progress billings on property units sold that serve as retention sum are closely monitored andclaimed upon expiry of retention period;Credit where granted for corporate clients in the hospitality sub-segment are duly assessed and selectivelyapproved with established limits;All tenants are subjected to deposits requirement averaging 3 months rental; andCredit exposure is monitored on limits and ageing, managed and reviewed periodically. Debtors withemerging credit problems are identified early and remedial actions are taken promptly to minimisefurther exposure and to restore past due status.Collateral and credit enhancementIn general, a combination of:(a)(b)(c)Title retention and conveyance on clearance for property development;Cash deposits/advance for hospitality sub-segment; andDeposits for rental sub-segment.232IOI CORPORATION BERHADAnnual Report 2012
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IOI CORPORATION BERHAD (9027-W)IOI
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KEYINDICATORS20%15105IOI CORPORATIO
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OUR VISIONOUR COREVALUESCONTENTSIOI
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CHAIRMAN’SSTATEMENT
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CONTRIBUTION TO SEGMENT RESULTS2012
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Sustainability andCORPORATE SOCIALR
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GROUP FINANCIALOVERVIEWCASH FLOWFOR
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GROUP PERFORMANCEHIGHLIGHTS2012RM
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FIVE-YEAR FINANCIALHIGHLIGHTS2012RM
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MANAGEMENT’SDISCUSSION AND ANALYS
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• Pre-tax Earnings decreased by 1
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20181614121086420-2%Cost of Equity
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plantationAchievements in productiv
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PLANTATION
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PLANTATION STATISTICSCROP STATEMENT
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OPERATIONS REVIEWFor the financial
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esource-based manufacturingThe succ
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RESOURCE-BASED MANUFACTURING
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OLEOCHEMICALSMANUFACTURINGThe princ
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Bottom: IOI Loders CroklaanAmericas
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PROPERTYA green building comprises
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Property
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Left: The new Palm GardenGolf Cours
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OUTLOOK & PROSPECTSThe local proper
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sustainability andCORPORATE SOCIAL
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Top: Beneficial plants.Bottom: Buff
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Operating under the Institute of Sh
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CORPORATE SOCIALRESPONSIBILITYSocia
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SEPTEMBER 2011Palm Garden Hotel, to
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DECEMBER 2011IOI Mall Puchong offer
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APRIL 2012Yayasan TSLSC donated RM2
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BOARD OF DIRECTORS3 4211. DATO’ L
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PROFILE OFDIRECTORSWhen others seet
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Lee Cheng Leang was first appointed
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Quah Poh Keat was first appointed t
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SeniorManagement TeamGroup Chief Ex
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GLOBALPRESENCECANADAONTARIOCANADAON
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LOCATION OFOPERATIONS IN MALAYSIAPe
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CORPORATECALENDARJULY 2011IOI Corpo
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JANUARY 2012IOIP, through its subsi
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MAY 2012IOI Oleochemical’s Penang
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Audit and Risk ManagementCommittee
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x. To review any related party tran
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STATEMENT ONCORPORATE GOVERNANCEInt
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Training and Development of Directo
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Cheah Tek Kuang 2011 Forbes Global
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SHAREHOLDERSDialogue Between the Co
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STATEMENT ONINTERNAL CONTROLINTRODU
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MONITORING• The Group’s policie
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STATEMENT OF DIRECTORS’ INTERESTS
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Notes:(1) Details of the transactin
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DIRECTORS’REPORTThe Directors of
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DIRECTORS’REPORTUSD600 Million Ze
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DIRECTORS’REPORTExecutive Share O
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DIRECTORS’REPORTDirectors’ Inte
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DIRECTORS’REPORTSignificant Event
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INCOMESTATEMENTSFor The Financial Y
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STATEMENTS OFFINANCIAL POSITIONAs A
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STATEMENTS OFCHANGES IN EQUITYFor T
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STATEMENTS OFCHANGES IN EQUITYFor T
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STATEMENTS OFCASH FLOWSFor The Fina
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STATEMENTS OFCASH FLOWSFor The Fina
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NOTES TO THEFINANCIAL STATEMENTS3.
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Page 181 and 182: NOTES TO THEFINANCIAL STATEMENTS22.
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Page 271 and 272: INDEPENDENTAUDITORS’ REPORTTo The
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GROUPPROPERTIESE. OTHER PROPERTIES
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NOTICE ofAnnual general MeetingAGEN
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NOTICE ofAnnual general MeetingNote
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SHAREHOLDERSINFORMATIONAs At 30 Aug
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SHAREHOLDERSINFORMATIONAs At 30 Aug
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1st fold heresTAMPThe Company Secre
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Annual Report 2012 - IOI Group

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