notes to the financial statements - Singapore Technologies ...

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212 SIMPLY SMARTERNOTES TO THE FINANCIAL STATEMENTS31 December 2011(Currency - Singapore dollars unless otherwise stated)47. Financial risk management objectives and policies (continued)The policies for managing each of these risks are broadly summarised below.Interest rate riskAs at reporting date, the interest rate profile of the interest-bearing financial instruments was:Group2011 2010$’000 $’000Fixed rate instrumentsFinancial assets 983,259 1,168,264Financial liabilities (1,207,250) (1,278,823)(223,991) (110,559)Variable rate instrumentsFinancial assets 454,999 239,680Financial liabilities (157,004) (69,338)297,995 170,342The Group has cash balances placed with reputable banks and financial institutions. The Group manages its interest rate risk on its interest income byplacing the cash balances in varying maturities and interest rate terms with due consideration to operating cash flow requirements and optimising yield.The Group’s debts include 10-year bonds issued, long and short-term bank borrowings and lease commitments. The Group seeks to minimise its interestrate risk exposure through tapping different sources of funds to refinance the debt instruments and/or enter into interest rate swaps, where appropriate.Movements in interest rates will therefore have an impact on the Group. A change of 50 basis points in interest rate at the reporting date would increase/decrease Group’s profit or loss and other comprehensive income by the amounts shown below. This analysis assumes that all other variables remain constant.Other comprehensive incomeProfit or loss50bpIncrease50bpDecrease50bpIncrease50bpDecrease$’000 $’000 $’000 $’000The Group2011Bank loans – – (785) 785Loans receivable – – 262 (262)Short-term investments (4,631) 7,442 – –2010Bank loans – – (347) 347Loans receivable – – 209 (209)Short-term investments (2,367) 2,844 – –Fixed deposits and bank loans with interest rate fixed over the contractual period are excluded from the sensitivity analysis. Information relating to theGroup’s interest rate risk exposure is also disclosed in the notes on the Group’s borrowings, investments and loans receivable, where applicable.
SINGAPORE TECHNOLOGIES ENGINEERING LTD Annual Report 2011213NOTES TO THE FINANCIAL STATEMENTS31 December 2011(Currency - Singapore dollars unless otherwise stated)47. Financial risk management objectives and policies (continued)Foreign exchange riskThe Group’s foreign exchange risk arises both from its subsidiaries operating in foreign countries, generating revenue and incurring costs denominated inforeign currencies, and from operations of its local subsidiaries which are transacted in foreign currencies. The Group’s foreign exchange exposures areprimarily from US dollars and Euro and the Group enters mainly into forward currency contracts to hedge against its foreign exchange risk resulting fromanticipated sale and purchase transactions denominated in foreign currencies in accordance with the Group’s hedging policy. The Group enters into crosscurrency swap to hedge the foreign exchange risk of its loans denominated in foreign currency. The Group also uses monetary assets and liabilities andembedded derivatives to hedge its risks associated with foreign currency fluctuation.The Company’s centralised Treasury Unit (“Unit”) facilitates intra-group foreign exchange transactions within the Group to net-off the foreign exchangeexposures before proceeding to transact with the banks.The Unit executes the Group’s material foreign exchange transactions with proper segregation of duties between authorised dealers and back office. Onlyauthorised dealers can transact with the banks on behalf of the Group, with back office confirming the deals. The dealers’ limits and permitted treasuryinstruments in the form of an authorisation matrix and mandates are communicated to all counterparties.Market riskThe Group has strategic investments in quoted equity shares. The market value of these investments will fluctuate with market conditions.The table below summarises the impact to the Group’s profit or loss and other comprehensive income arising as a result of a 10% increase/decreasein the fair value of the quoted investments, assuming no impairment on the quoted investments. This analysis assumes that all other variables remainconstant.Other comprehensive incomeProfit or loss10%increase10%decrease10%increase10%decrease$’000 $’000 $’000 $’000The Group2011Quoted investments 934 (934) 21 (21)2010Quoted investments 1,390 (1,390) 53 (53)Liquidity riskTo manage liquidity risk, the Group monitors its net operating cash flows and maintains an adequate level of cash and cash equivalents and securedcommitted funding facilities from financial institutions. In assessing the adequacy of these funding facilities, management reviews its working capitalrequirements regularly.The table below analyses the Group’s financial liabilities and certain derivative financial instruments that will be settled on a gross basis into relevantmaturity groupings based on the remaining period at reporting date to the contractual maturity date. The amounts disclosed in the table below are thecontractual undiscounted cash flows.
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