NOTES TO THE FINANCIAL STATEMENTS
31 December 2014
34. Contingent liabilities
The Company has provided financial guarantees to the banks in respect of the long term loans and borrowings of its subsidiary
companies and a joint venture with a carrying amount of S$104,492,000 (2013: S$128,448,000) (Note 26). The fair value
of such financial guarantees is not expected to be material as the loans and borrowings are collateralised against the Group’s
development properties. Accordingly, the fair value of the financial guarantees has not been recognised.
35. Financial risk management objectives and policies
The Group and the Company is exposed to financial risks arising from its operations and the use of financial instruments. The
key financial risks include interest rate risk, credit risk, market price risk and liquidity risk. The Board of Directors reviews and
agrees policies and procedures for the management of these risks. It is, and has been throughout the years under review, the
Group’s policy that no trading in derivatives for speculative purposes 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.
There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures
the risks.
(a) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments
will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk
arises primarily from the Group’s floating rate loans and borrowings, cash and short term deposits.
Sensitivity analysis for interest rate risk
At the end of the reporting period, if SGD interest rates had been 100 (2013: 100) basis points higher/lower with all other
variables held constant, the Group’s profit net of tax would have been S$1,537,000 (2013: S$745,000) higher/lower, as
a result of higher/lower interest income on cash and short term deposits, and the amount of interest capitalised as part
of the Group’s development properties as at 31 December 2014 would have been S$210,000 (2013: S$452,000) higher/
lower, as a result of higher/lower interest expense on floating rate loans and borrowings.
Hock Lian Seng Holdings Limited
Annual report 2014
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