FGV Annual Report 2013

Felda Global Ventures Holdings Berhad 211 4 FINANCIAL RISK MANAGEMENT (a) Financial risk management policies The Group is exposed to market risk (including foreign currency risk, equity price risk, commodity price risk and finanace rate risk), credit risk and liquidity risk arising from its business activities. The Group’s overall risk management strategy seeks to minimise adverse effects from the unpredictability of financial markets on the Group’s financial performance. The Group uses relevant derivative financial instruments to hedge the risk of such commercial exposure. Such derivative financial instruments are generally not held for trade or speculative purposes. The Board of Directors has overall responsibility for the oversight of financial risk management which include risk identification, operational or strategic, and the subsequent action plans to manage these risks. Management is responsible for identifying, monitoring and managing the Group’s risk exposures. Market risk (i) Foreign currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United State Dollar (“USD”) and the Canadian Dollar (“CAD”). Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations but excludes interest in foreign joint ventures and associates. The Group manages its currency exposure through foreign currency forward contracts. A 10% strengthening/weakening of the USD and CAD against the Malaysian Ringgit (“RM”) at the date of statement of financial position would have an impact to Group’s profit after tax approximately of RM16,077,000 higher/lower (2012: RM17,076,000 higher/ lower), mainly as a result of foreign exchange gains/losses on translation of foreign currency denominated trade receivables and payables, financial assets at fair value through profit or loss and foreign exchange losses/gains on translation of foreign currency denominated borrowings. The analysis assumes that all other variables remain constant. (ii) Price risk Price risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices (other than finance or exchange rates). Equity price risk The Group is exposed to equity price risk arising from its investment in quoted and unquoted equity instruments. The quoted equity investments are listed on the Bursa Malaysia and foreign stock exchanges and classified as available-for-sale financial assets or financial asset at fair value through profit or loss based on the purpose for which the quoted equity investments were acquired. Unquoted investments are valued using the Price Earnings (“PE”)/Price to Book (“PB”) comparative method and classified as available-for-sale financial assets. The sensitivity analysis in relation to equity price risk is as follows: Group 2013 Impact Financial to profit Impact assets Sensitivity factor after tax to equity RM’000 RM’000 Available-for: - sale - unquoted Comparable PE multiple and PB multiple variance by 5% - 9,014 - quoted Share price variance by 5% - 205 Fair value through profit or loss - quoted Share price variance by 5% 680 - Total impact 680 9,219 There is no comparative impact for 2012.