NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2015
136
THE STRAITS TRADING COMPANY LIMITED
40.
FINANCIAL RISK MANAGEMENT (CONT’D)
(e)
Equity price risk
Changes in the market value of investment securities can affect the net income and financial position of the Group.
The Group diversifies its investments by business sector and by country. It manages the risk of unfavourable changes
by prudent review of the investments before investing and continuous monitoring of their performance and risk
profiles.
The investment securities that are subject to equity price risk are classified as either held-for-trading or available-
for-sale (AFS).
At the end of the reporting period, the Group’s held-for-trading equity portfolio consists of shares of companies
in Singapore of 61% (2014: 76%), Japan 13% (2014: Nil), China, Hong Kong 9% (2014: Nil) and 17% (2014: 24%) in
other countries. If the equity prices had been 5% higher/lower with all other variables held constant, the Group’s
profit after tax would have been $8,818,000 (2014: $3,266,000) higher/lower, arising as a result of higher/lower
fair value changes.
At the end of the reporting period, 97% (2014: 99%) of the Group’s AFS equity portfolio consists of shares of
companies in Singapore and 3% (2014: 1%) in Canada. If the Singapore and Canada equity prices had been 5%
higher/lower with all other variables held constant, the Group’s AFS reserve in equity would have been $7,421,000
(2014: $9,333,000) higher/lower, arising as a result of higher/lower fair value changes.
(f)
Commodity price risk
Commodity price risk is the risk of financial loss resulting from movements in the price of the Group’s commodity
inputs and outputs. The Group is exposed to commodity price risk on revenue for sales of tin as well as production
cost for fuel consumed in the operations.
The commodity price risk on revenue for sales of tin is managed through contractual arrangements with customers
and forward commodity contracts. At the reporting date, there was no such contract outstanding.
The commodity price risk on production cost for fuel is managed through forward commodity contracts. The
terms of the forward commodity contracts have been negotiated to match the terms of the commitments. There
were no highly probable transactions for which hedge accounting had previously been used, which are no longer
expected to occur. The ineffective contracts recognised in profit or loss for the financial year ended 31 December
2015 was $226,000 (2014: Nil). The cash flow hedges of certain contracts were assessed to be highly effective and
a net unrealised loss of $1,288,000 (2014: $160,000) with a deferred tax credit of $309,000 (2014: $38,000) relating
to the hedging instruments is included in other comprehensive income.
The following table demonstrates the sensitivity to a reasonably possible change in the commodity price, with all
other variables held constant, of the Group’s profit or loss net of tax and equity at the reporting date:
Increase/
(Decrease)
in profit net of tax
Increase/
(Decrease)
in equity
2015
2014
2015
2014
$’000
$’000
$’000
$’000
Fuel price
increased by 5%
(13)
(45)
64
78
decreased by 5%
23
(201)
(64)
(78)
