254 F INANC IAL Statements 05 Sect ion Ranhi ll Ut i l i t i es Berhad NOTES TO THE F INANC I AL STATEMENTS For the year ended 31 December 2022 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.) (c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk arises primarily from loans and borrowings. The Group’s policy is to manage interest cost using a mix of fixed and floating rate instruments with regards to these loans and borrowings. The Group has no significant interest-bearing financial assets, the Group’s and the Company’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest-bearing financial assets are mainly short-term in nature and have been mostly placed in fixed deposits. Sensitivity analysis for interest rate risk At the reporting date, if interest rates had been 10 basis points lower/higher, with all other variables held constant, the Group’s profit net of tax and equity would have been RM92,000 (2021: RM117,000) lower/higher, arising mainly as a result of lower/higher interest income from floating rate deposits. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment. (d) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily RM and Renminbi (“RMB”). Approximately 3% (2021: 2%) of the Group’s sales are denominated in foreign currencies whilst almost 1% (2021: 2%) of Group’s costs are denominated in the foreign currency. The Group’s trade receivables and trade payable balances at the reporting date have similar exposure. The Group also hold cash and cash equivalents denominated in foreign currencies for working capital purposes. The currency exposure profile of cash and cash equivalents are disclosed in Note 29.
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