Notes to the Financial Statements
(Cont’d)
For the year ended 30 April 2015
(In Singapore Dollars)
89
STAMFORD TYRES CORPORATION LIMITED
BUILDING ON OUR EXTENSIVE NETWORK
35. Financial risk management objectives and policies (cont’d)
(a)
Foreign currency risk
Foreign exchange risk arises from a change in foreign currency exchange rate, which is expected
to have an adverse effect on the Group in the current reporting period and in future years. The
Group operates in several countries and subsidiary, associated and joint venture companies within
the Group maintain their books and records in their respective functional currencies. The Group’s
accounting policy is to translate the results of overseas subsidiary, associated and joint venture
companies using the weighted average exchange rates. Net assets denominated in foreign
currencies and held at the financial year end are translated into Singapore Dollars, the Group’s
reporting currency, at year end exchange rates. Fluctuations in the exchange rate between the
functional currencies and Singapore dollar will therefore have an impact on the Group. It is the
Group’s policy not to hedge exposures arising from such translations. The Group’s strategy is to fund
overseas operations with borrowings denominated in their functional currencies as a natural hedge
against overseas assets.
The Group is also exposed to the volatility in the foreign currency cash flows related to repatriation
of the investments in and advances to its subsidiary, associated and joint venture companies. The
Group does not hedge exposures arising from such risks.
The Group’s trading subsidiary companies are exposed to movements in foreign currency rates
arising from the purchases of goods from suppliers and sales made to customers located in several
countries. Whenever necessary, foreign exchange forward contracts are used by the subsidiary
companies to manage the foreign currency exposure arising from their trading activities. The Group
accounting policies in relation to these derivative financial instruments are set out in Note 2.24.
Sensitivity analysis for foreign currency risk
A 5% fluctuation of certain foreign currencies against the underlying functional currencies of the
Group’s entities at the end of each reporting period would have an impact on the Group’s profit net
of tax by the amounts shown below. The analysis assumes all other variables, in particular, interest
rates, remained constant. The analysis is performed on the same basis for the financial year ended
30 April 2014.
(Decrease)/increase
Profit net of tax
2015
2014
$’000
$’000
USD
– strengthened by 5% against SGD (2014: 5%)
(274)
(220)
– weakened by 5% against SGD (2014: 5%)
274
220
ZAR
– strengthened by 5% against SGD (2014: 5%)
20
165
– weakened by 5% against SGD (2014: 5%)
(20)
(165)
MYR
– strengthened by 5% against SGD (2014: 5%)
234
165
– weakened by 5% against SGD (2014: 5%)
(234)
(165)
