ACCOUNTABILITY | NOTES TO THE FINANCIAL STATEMENTS 263 INTEGRATED ANNUAL REPORT 2026 44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued) (ii) Foreign currency risk (continued) Instruments used by the Group The Group uses foreign exchange forwards to hedge its exposure to foreign currency risk. Under the Group’s policy, the critical terms of the forwards must align with the hedged terms. The Group only designates the spot component of foreign exchange forward contracts in hedge relationships. The spot component is determined with reference to relevant spot market exchange rates. The differential between the contracted forward rate and the spot market exchange rate is defined as the forward points. It is discounted, where material. The changes in the forward element of the foreign exchange forward contracts that relate to the hedged items are recognised in profit or loss. Hedge of net investment in a foreign subsidiary In previous financial years, the Group raised, through the Rights Issue, proceeds denominated in RM to fund additional equity investments into a foreign subsidiary which are denominated in USD. The Group was granted approval to convert the RM-denominated proceeds into USD by Bank Negara Malaysia with a requirement that any RM sold is fully repurchased in the future. In compliance with the above-mentioned requirement, the Group entered into foreign exchange forward contracts which were designated as a hedge of the net investment in the foreign subsidiaries. The changes in the spot component of the forward contracts, which are determined with reference to the relevant spot market exchange rates, are deferred in the foreign currency translation reserve. Cost of hedging is recognised in profit or loss. During the current financial year, the foreign exchange forward contracts designated as a hedge of the net investment in foreign subsidiaries were fully settled. Upon settlement, the hedge was discontinued and cumulative fair value changes previously recognised and accumulated in the foreign currency translation reserve continue to be retained in equity and will only be reclassified to profit or loss on the disposal of the foreign subsidiaries. Effects of hedge accounting on the financial position and performance 2026 RM million 2025 RM million Net investment in a foreign subsidiary Carrying amount of derivatives (current liability) - (1) USD carrying amount - USD237 million Hedge ratio - 100% Change in carrying amount of forward contracts as a result of foreign currency movements since 1 February, recognised in Other Comprehensive Income (55) (93) Change in value of hedged item used to determine hedge effectiveness 55 93 Weighted average hedge rate for the year (including forward points) RM4.2879 : USD 1 RM4.4969 : USD 1
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