FRENCKEN GROUP LIMITED
ANNUAL REPORT 2015
113
NOTES TO FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 (CONT’D)
34 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(a) Market risk (Cont’d)
(iii) Cash flow and fair value interest rate risks
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a
financial instrument will fluctuate due to changes in market interest rates.
The Group’s exposure to changes in interest rates related primarily to its placement in fixed deposits, short-
term funds, bank borrowings and finance lease arrangement. At balance sheet date, approximately 4.2%
(2014 : 5%) of the Group’s borrowings are at fixed rates of interest.
The Group’s and the Company’s deposits at fixed rates are denominated primarily in MYR, THB and INR.
The Group’s borrowings (as disclosed in Note 26) at variable rates on which effective hedges have not
been entered into are denominated mainly in MYR, SGD, Euro, RMB, INR and USD. If interest rate increase/
decrease by 0.5% with all other variables including tax rate being held constant, the Group’s net profit
will be lower/higher by $249,000 (2014 : $262,000) as a result of higher/lower interest expense on these
borrowings.
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group.
Financial assets, which potentially subject the Group to concentration of credit risk, consist principally of trade
and other receivables, financial asset, available-for-sale, short-term funds, deposits and bank balance. The Group’s
short-term funds, deposits and bank balance are placed with high creditworthiness financial institutions. The
management does not expect any losses arising from non-performances by these counterparties.
The Group’s trade receivables comprise 4 debtors (2014 : 4 debtors) that individually represented 7% to 18%
(2014 : 8% to 14%) of trade receivables.
Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. Credit risk
is minimised and monitored through limiting its associations to business partners with high creditworthiness.
Trade receivables’ payment profile and credit exposure are monitored on an ongoing basis through Group’s
management reporting procedures.
As the Group and Company does not hold any collateral, the maximum exposure to credit risk for each class of
financial instruments is the carrying amount of that class of financial instruments presented on the balance sheet,
except as follows:
The Company
2015
$’000
2014
$’000
Guarantees for banking facilities granted to subsidiaries
– unsecured
10,456
9,125
