FGV Annual Report 2017

ANNUAL INTEGRATED REPORT 2017 FINANCIAL STATEMENTS 171 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 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”), sugar 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 2017, 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 RM100 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: 2017 RM’000 2016 RM’000 - Palm oil 4,669 28,813 - LLA liability (115,444) (113,511) Net decrease (110,775) (84,698) A 10% decrease in certain commodity price indexes or a RM100 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: 2017 RM’000 2016 RM’000 - Palm oil (4,669) (28,813) - LLA liability 118,788 117,092 Net increase 114,119 88,279