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196 | S P SETIA BERHAD GROUP | Annual Report 2014

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 October 2014

V. FINANCIAL STATEMENTS

44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s and the Company’s activities are exposed to a variety of financial risks, including interest rate risk, credit risk, foreign

currency exchange risk, liquidity and cash flow risks. The Group’s and the Company’s overall financial risk management objective is to

minimise potential adverse effects on the financial performance of the Group and the Company.

Financial risk management is carried out through risk review, internal control systems and adherence to the Group’s and the Company’s

financial risk management policies.The Board regularly reviews these risks and approves the policies covering the management of these

risks. The Group and the Company do not trade in derivative instruments.

(a) Interest rate risk

The Group and the Company are exposed to interest rate risk which is the risk that a financial instrument’s value will fluctuate as a

result of changes in market interest rates.

Surplus funds are placed with licensed financial institutions to earn interest income based on prevailing market rates. The Group and

the Company manage its interest rate risks by placing such funds on short tenures of 12 months or less.

The Group’s and the Company’s policy is to borrow principally on a floating rate basis but to retain a proportion of fixed rate

borrowings. The objective of a mix of fixed and floating rate borrowings is to reduce the impact of a rise in interest rates and to

enable savings to be enjoyed if interest rates fall. The Group and the Company do not generally hedge interest rate risks. The Group

and the Company have a policy to ensure that interest rates obtained are competitive.

Sensitivity analysis for interest rate risk

The weighted average interest rate for bank borrowings of the Group and the Company are as follows:

Group

Company

2014

2013

2014

2013

%

%

%

%

Restated

Weighted average interest rate

3.97

3.65

4.31

4.20

A sensitivity analysis has been performed based on the outstanding floating rate bank borrowings of the Group and the Company

as at 31 October 2014. If interest rates were to increase or decrease by 50 basis points with all other variables held constant,

the Group’s and the Company’s profit before tax would decrease or increase by RM5,177,000 and RM4,858,000 (2013 (restated):

RM5,004,000 and RM4,794,000) respectively.

For those interest expense incurred and capitalised as part of the expenditure on investment property under construction, land

held for property development and property development costs during the financial year, if the interest rates were to increase

or decrease by 50 basis points with all other variables held constant, those assets of the Group would increase or decrease by

RM16,418,000 (2013 (restated): RM14,887,000).