Notes to the Financial Statements
31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(a) Credit risk (CONT’D)
Credit risk concentration profile Trade receivables
At the reporting date, the Group has a significant concentration of credit risk in the form of outstanding balances from five customers (2019: five customers) representing approximately 78% (2019: 82%) of the total trade receivables.
Management concluded that the credit risk in respect of trade receivables is insignificant. These receivables are not secured by any collateral.
Contract assets
At the reporting date, the Group has a significant concentration of credit risk in the form of contract assets from three customers (2019: three customers) representing approximately 88% (2019: 82%) of the total contract assets.
The credit risk is minimal and low as the substantial amount of contract assets are backed by a formal assignment to the Group of all solar energy sales proceeds collectable from TNB as disclosed in Note 19 to the financial statements.
Management applies simplified approach (i.e., lifetime expected credit losses) in measuring the loss allowance for trade receivables and contract assets. The expected credit losses on trade receivables and contract assets are estimated using a provision matrix by reference to past default experience of the debtors and an analysis of the debtors’ current financial position, adjusted for factors that are specific to the debtors, general economic outlook of the energy industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
There has been no change in the estimation techniques or significant assumptions made during the current reporting period.
During the financial year, no debtor has been identified by the Group and the Company as credit-impaired.
Management writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g., when the debtor has been placed under liquidation or has entered into bankruptcy proceedings.
Amounts due from subsidiaries
At the reporting date, the Company has a significant concentration of credit risk in the form of outstanding balances from three subsidiaries (2019: two subsidiary) representing approximately 99% (2019: 99%) of the total amounts due from subsidiaries.
Management assesses the credit risk of amounts due from subsidiaries with reference to the financial position, business performance of the subsidiaries and probability of default.
The amounts due from subsidiaries are considered to have low credit risk as the Company has control over the operating, investing and financing activities of its subsidiaries. The use of advances to assist with the subsidiaries’ cash flow management is in line with the Group’s treasury management. There has been no significant increase in the credit risk of the amounts due from subsidiaries since initial recognition.
Management has assessed and concluded that any credit risk in respect of amounts due from subsidiaries to be considered insignificant.
Notes to the Financial Statements
for the year ended 31 October 2020
31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(b) Cash flow and liquidity risks
Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.
Management seeks to ensure all business units maintain optimum levels of liquidity at all times, sufficient for their operating, investing and financing activities. The Group expects to meet its obligations from operating cash flows.
Nonetheless, the Group has ready sufficient credit facilities available to meet its liquidity requirements while ensuring effective working capital management within the Group. As at the reporting date, the Group has unused credit facilities of RM918,599,000 (2019: RM321,598,000) that it can access to meet liquidity needs. The amount of undrawn borrowing facilities is available for future operating activities and for meeting investing requirements.
Analysis of financial instruments by remaining contractual maturities
The table below summarises the maturity profile of the Group’s and of the Company’s liabilities at the reporting date based on contractual undiscounted repayment obligations.
<--- 2020 --->
On demand
or within One to Two to Over
one year two years five years five years Total
RM’000 RM’000 RM’000 RM’000 RM’000
Group
Trade and other payables 133,192 11,944 23,876 - 169,012
Loans and borrowings 254,998 74,596 261,060 941,132 1,531,786
388,190 86,540 284,936 941,132 1,700,798
Lease liabilities 1,121 1,072 2,446 6,020 10,659
389,311 87,612 287,382 947,152 1,711,457
Company
Trade and other payables 184,832 - - - 184,832
Loans and borrowings 26,167 - - - 26,167
Total undiscounted financial liabilities 210,999 - - - 210,999
Financial guarantees contracts* 724,071 - - - 724,071
for the year ended 31 October 2020
I CORPORATE GOVERNANCE I FINANCIAL STATEMENTS I ADDITIONAL INFORMATION
151
ANNUAL REPORT 2020
31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(b) Cash flow and liquidity risks (cont’d)
Analysis of financial instruments by remaining contractual maturities (cont’d)
The table below summarises the maturity profile of the Group’s and of the Company’s liabilities at the reporting date based on contractual undiscounted repayment obligations. (cont’d)
<--- 2019 --->
On demand
or within One to Two to Over
one year two years five years five years Total
RM’000 RM’000 RM’000 RM’000 RM’000
Group
Trade and other payables 196,882 30,443 406 - 227,731
Loans and borrowings 237,798 109,582 367,557 1,012,546 1,727,483
Total undiscounted financial liabilities 434,680 140,025 367,963 1,012,546 1,955,214 Company
Trade and other payables 235,721 - - - 235,721
Loans and borrowings 20,540 - - - 20,540
Total undiscounted financial liabilities 256,261 - - - 256,261
Financial guarantees contracts* 631,558 - - - 631,558
* The Company provides unsecured financial guarantees to banks in respect of banking facilities granted to certain subsidiaries. The maximum exposure to the Company amounted to RM724,071,000 (2019: RM631,558,000) representing banking facilities utilised by the subsidiaries at the reporting date. The amount represents maximum guarantees which could be recalled. At the reporting date, the Company does not consider it probable that a claim will be made against Company under the intra-group financial guarantees. The fair value of these corporate guarantees is estimated to be insignificant as the borrowings are fully collateralised by the related mortgaged assets and the subsidiaries have the ability to generate sufficient cash flows from their operations to repay the borrowings.
(c) Interest rate risk
Interest rate risk is the risk that the future cash flows of the Group’s and of the Company’s financial instruments will fluctuate because of the changes in market interest rates.
The Group’s and the Company’s exposure to interest rate risk arises primarily from their loans and borrowings at floating interest rates. Short term deposits with licensed banks are at fixed interest rates. The Group manages its interest rate exposure by maintaining a prudent mix of fixed and floating rate borrowings. The Group actively reviews its debt portfolio, taking into account the investment holding period and nature of its assets. This strategy allows it to capitalise on cheaper funding in a low interest rate environment and achieve a certain level of protection against rate hikes.
Notes to the Financial Statements
for the year ended 31 October 2020
31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(c) Interest rate risk (cont’d)
Sensitivity analysis for interest rate risk
At the reporting date, 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 net of tax would decrease or increase by RM1,174,000 and RM98,000 (2019:
RM949,000 and RM76,000) respectively, arising from the outstanding floating rate term loans and borrowings as at the end of the reporting period.
The sensitivity analysis is unrepresentative of the inherent interest rate risk as the year-end exposure does not reflect the exposure during the year.