MISC Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 333 MISC BERHAD ANNUAL REPORT 2018 332 38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (a) Interest rate risk (cont'd.) As at 31 December 2018, the Group and the Corporation's exposure to the risk of changes in market interest rate relates primarily to the Group and the Corporation's placement of deposits with licensed banks, cash and bank balances, loans to subsidiaries and associate, interest-bearing loans and borrowings and loans from subsidiaries. The interest-bearing financial instruments of the Group and of the Corporation based on carrying amount, as at reporting date were as follows:     Group    Corporation  2018   2017   2018   2017   RM'000   RM'000   RM'000   RM'000  Fixed rate instruments Financial assets Deposits with licensed banks 336,394  968,188  20,888 -  Deposits with IFSSC 4,204,421 4,539,414  1,936,876 2,565,719  Loans to subsidiaries - -  1,077,142 1,221,886  Financial liabilities Fixed rate borrowings 50,000 -  - -  Floating rate borrowings (swapped to fixed rate)  1,815,371 2,139,273  - -  Loans from subsidiaries - -  395,987 704,816  Floating rate instruments Financial assets Cash and bank balances 1,214,789 393,122  55 12,054  Loans to subsidiaries - -  1,290,761 2,648,513  Financial liabilities Floating rate borrowings 11,184,535 9,524,620  763,416 121,785  Loans from subsidiaries - -  5,137,967  6,397,966  38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT'D.) (b) Foreign currency risk The currencies giving rise to this risk are primarily RM and USD. Approximately 7% (2017: 2%) and 5% (2017: 8%) of the Group and the Corporation's revenue are denominated in currency other than the currency of the primary economic environment which the entities operate. Approximately 4% (2017: 4%) and 4% (2017: 8%) of the Group and the Corporation's cost of sales are denominated in currency other than the currency of the primary economic environment which the entities operate. The Group maintains a natural hedge, wherever possible, by borrowing in currencies that matches the future revenue streams to be generated from its investments, except for in the previous financial year the Group held forward currency contracts designated as hedges of expected future receipts and payments denominated in United States Dollar, Singapore Dollar, Euro and Great Britain Pound. The forward currency contracts are being used to hedge the foreign currency risk of the highly probable forecasted transactions. The cash flow hedges of the expected future receipts which are expected to occur within the next 12 months, were assessed to be highly effective and a net unrealised gain of RM6,561,000, which represents the effective portion of the hedging relationship, is included in other comprehensive income in the previous financial year. At 31 December 2018, the said forward currency contract has matured. With all other variables held constant, the following table demonstrates the sensitivity of the Group and the Corporation's profit before taxation to a reasonably possible change in the USD and RM exchange rates. 2018 2017 Change in currency rate % Effect on profit before taxation Increase/ (Decrease) RM'000 Change in currency rate % Effect on profit before taxation (Decrease)/ Increase RM'000 Group USD/RM +5% 15,469 +5%                (129) -5% (15,469) -5%                 129  Corporation USD/RM +5% 6,772 +5% 11,723  -5% (6,772) -5%           (11,723)