56 FGV HOLDINGS BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2021 4 FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Financial risk management policies (continued) Market risk (continued) (ii) Price risk (continued) Commodity price risk The Group is exposed to commodity price risk since the prices of crude palm oil (“CPO”) and their derivatives are subject to fluctuations due to unpredictable factors such as weather, changes in global demand and production, crude oil prices and global production of similar and competing crops. Revenue of the Group is therefore subject to price fluctuations in the commodity market. The Group uses derivative contracts to mitigate a portion of such risks. As at 31 December 2021, sensitivity analysis had been performed based on the Group’s exposure to commodity prices as at settlement date for the Group’s LLA liability and commodity derivative portfolios. A 10% increase in certain commodity price indexes or a RM200 increase in CPO prices assumed in calculating the LLA liability, with all other variables being held constant, would increase or decrease the Group’s profit after tax, by type of significant commodity and financial liability, by approximately: 2021 2020 RM’000 RM’000 – Palm oil 1,009 23,276 – LLA liability (204,540) (242,978) Net decrease (203,531) (219,702) A 10% decrease in certain commodity price indexes or a RM200 decrease in CPO prices assumed in calculating the LLA liability, with all other variables being held constant, would increase or decrease the Group’s profit after tax, by type of significant commodity and financial liability, by approximately: 2021 2020 RM’000 RM’000 – Palm oil (1,009) (23,276) – LLA liability 217,259 262,404 Net increase 216,250 239,128 (iii) Finance rate risk The Group’s finance rate risk mainly arises from LLA liability and borrowings issued at variable rates which expose the Group to cash flow finance rate risk. The Group has been in constant engagement with its lender to manage its finance rate risk and has been advised that the current KLIBOR is still being referenced for its borrowings. The Group has also been informed that currently, the lender shall be guided by further announcement by Bank Negara Malaysia (“BNM”) on the timeline for the migration to the alternative reference rate (“ARR”) upon the cessation of the current KLIBOR rate. Upon the issuance of the guidelines, the lenders will engage the Group on the transition plan.
RkJQdWJsaXNoZXIy NDgzMzc=