Notes to the Financial Statements
(Cont’d)
For the financial year ended 30 April 2016
(In Singapore Dollar)
ANNUAL REPORT 2016
DRIVING IT UP
| 97
35.
Financial risk management objectives and policies
The Group’s principal financial instruments, other than derivative financial instruments, comprise short-
term and long-term bank borrowings, hire-purchase contracts, and cash and short-term deposits. The main
purpose of these financial instruments and borrowings are to raise finance for the Group’s operations. The
Group has various other financial assets and liabilities such as trade receivables and trade payables, which
arise directly from its operations.
The Group also enters into derivative instruments in the form of interest rate swap and forward currency
contracts to manage interest rate and currency risks arising from the Group’s operations and its sources of
financing.
It is, and has been throughout the year under review, the Group’s policy that no trading in derivative
financial instruments shall be undertaken.
The main risks faced by the Group and Company are foreign currency risk, interest rate risk, credit risk and
liquidity risk that arise through its normal operations.
(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 Dollar, 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.
