34. Financial risk management objectives and policies
The Group’s activities expose it to a variety of risks, including interest rate, liquidity, foreign currency, credit
and market price risks. The Group’s overall financial risk management objective is to ensure that the Group
creates value for its shareholders while minimising potential adverse effects on the performance of the
Group.
The Board of Directors reviews and agrees policies and procedures for the management of these risks, which
are executed by the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. The Audit
Committee provides independent oversight to the effectiveness of the risk management process.
It is, and has been throughout the current and previous financial year, the Group’s policy that no derivatives
shall be undertaken except for use as hedging instruments where appropriate and cost efficient. The Group
and the Company do not apply hedge accounting.
The following sections provide details regarding the Group’s and the Company’s exposure to the above-
mentioned financial risks and the objectives, policies and processes for the management of these risks.
(i) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of the Group’s and the Company’s
financial instruments will fluctuate because of changes in market interest rates. The Group’s and the
Company’s interest rate risk arises from bank deposits and borrowings and intercompany loans.
The Group finances its operations through operating cash flows and borrowings, which is predominantly
denominated in Ringgit Malaysia. The Group manages its borrowings through floating rate banking
facilities. Loans to group companies are carried at floating rates which are remeasured at periodic intervals
to approximate market interest rates or cost of borrowings. The loans to Subsidiaries, which are funded
at floating rates, form a natural hedge for its floating rate bank borrowings.
Funds from initial public offering earmarked for acquisition of plantation lands, are currently deposited
with financial institutions at market rates.
Sensitivity analysis for interest rate risk
At the reporting date, if interest rates had been 50 basis points lower/higher, with all other variables held
constant, the Group’s and Company’s profit net of tax would have been:
Group
Company
Effect on profit net of tax Effect on profit net of tax
Increase/(Decrease)
Increase/(Decrease)
2015
2014
2015
2014
RM’000
RM’000
RM’000
RM’000
50 basis points decrease in interest rate
1,913
1,556
(335)
(726)
50 basis points increase in interest rate
(1,913)
(1,556)
335
726
The assumed movement in the basis points for interest rate sensitivity analysis is based on a prudent
estimate of the current market environment.
n otes to th e f i nan c i a l statements
Bo ustead plantati o ns Berhad
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