PURSUANT TO SECTION 251(1)(B) OF THE COMPANIES ACT 2016
At 30 June 2020
32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. The key financial risks include credit risk, liquidity risk, foreign currency risk and market price risk.
The Board of Directors reviews and agrees policies and procedures for the management of these risks, which are executed by the management.
It is, and has been throughout the current and previous financial year, the Group’s policy that no derivatives shall be undertaken. The Group and the Company do not apply hedge accounting.
The following sections provide details regarding the Group's and the Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks.
(a) Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group's and the Company’s exposure to credit risk arise primarily from trade and other receivables. For other financial assets (including investment securities and cash and bank balances), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties.
The Group’s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group and the Company trades only with recognised and creditworthy third parties.
In addition, receivable balances are monitored on an ongoing basis to minimise the Group’s exposure to bad debts.
Exposure to credit risk
At the reporting date, the Group's and the Company’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statements of financial position.
Information regarding credit enhancements for trade and other receivables is disclosed in Note 19.
Credit risk concentration profile
At the reporting date, approximately Nil (2019: 57%) of the Company's trade and other receivables were due from its subsidiary, Devon Worldwide Limited.
Financial assets that are neither past due nor impaired
Information regarding trade and other receivables that are neither past due nor impaired is disclosed in Note 19.
32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)
(b) Liquidity risk
Liquidity risk is the risk that the Group and 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 diverse sources of committed and uncommitted credit facilities from various banks.
In the management of liquidity risk, the Group and the Company monitors and maintains a level of cash and bank balances deemed adequate by the management to finance the Group’s and the Company's operations and mitigate the effects of fluctuations in cash flows.
The table below summarises the maturity profile of the Group’s and the Company's financial liabilities at the reporting date based on contractual undiscounted repayment obligations.
On demand
or within Two to five Over five
one year years years Total
Group RM RM RM RM
Financial liabilities 2020
Trade and other payables 5,161,624 798,545 - 5,960,169
Lease liabilities 250,000 1,000,000 3,250,000 4,500,000
Total undiscounted
financial liabilities 5,411,624 1,798,545 3,250,000 10,460,169 2019
Trade and other payables 4,873,852 724,681 - 5,598,533
Total undiscounted
financial liabilities 4,873,852 724,681 - 5,598,533 Company
2020
Trade and other payables 1,161,121 287,761 - 1,448,882
Total undiscounted
financial liabilities 1,161,121 287,761 - 1,448,882 2019
Trade and other payables 1,184,614 263,940 - 1,448,554
32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)
(c) 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 its investments and short term deposits with licensed banks that are denominated in a currency other than the respective functional currencies of Group's entities, primarily in Ringgit Malaysia ("RM"), United States Dollar (“USD”) and Singapore Dollar ("SGD").
The foreign currencies in which these transactions are denominated are mainly RM, SGD and British Pound ("£").
The Group also holds cash and cash equivalents denominated in foreign currencies. At the reporting date, such foreign currency balances amounted to RM207,545,790 (2019: RM242,232,597) respectively.
Sensitivity analysis for foreign currency risk
The following table demonstrates the sensitivity of the Group's (loss)/profit before tax to a reasonably possible change in the SGD, £ and USD exchange rates against the respective functional currencies of the Group entities, with all other variables held constant.
2020 2019
RM RM
Increase/(decrease) in profit before tax
SGD/RM - Strengthened 5% 1,141,000 1,353,000
- Weakened 5% (1,141,000) (1,353,000)
SGD/USD - Strengthened 5% 6,773,000 6,696,000
- Weakened 5% (6,773,000) (6,696,000)
£/USD - Strengthened 5% 1,654,000 1,888,000
- Weakened 5% (1,654,000) (1,888,000)
RM/SGD - Strengthened 5% 101,000 113,000
- Weakened 5% (101,000) (113,000)
(d) Market price risk
Market price risk is the risk that the fair value or future cash flows of the Group's and the Company's financial instruments and investments will fluctuate because of changes in market price (other than interest or exchange rate).
The Group and the Company are exposed to market price risk arising from its investments in quoted equity instruments quoted on SGX-ST in Singapore and gold bullion in Australia.
32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)