Page 124 - HRC_Annual_Report_2023

122 About HRC Value Creation Management Discussion Leadership
& Analysis

NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023

4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(a) Market risk (continued)

(iii) Commodity price risk and refining margin risk (continued)
The table shows the effect of market price changes on the fair value of the Company’s commodity swaps:
Increase/(Decrease)
in profit after tax
2023 2022
RM’000 RM’000

10% increase in commodity price (54,014) (43,073)
10% decrease in commodity price 54,014 43,073

The table shows the effect of price changes on the fair value of the Company’s refining margin swaps:
Increase/(Decrease) Increase/(Decrease)
in equity in profit after tax
2023 2022 2023 2022
RM’000 RM’000 RM’000 RM’000
10% increase in refining margin (29,201) (123,428) 2,110 26,425
10% decrease in refining margin 29,201 123,428 (2,110) (26,425)

(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Company. At the reporting date, the Company’s maximum exposure to credit risk is represented by the carrying amounts
of each class of financial assets recognised in the statement of financial position.
(i) Receivables
Credit risk on customers arises when sales are made on credit terms. It seeks to control credit risk by setting
counterparty limits and ensuring that sales of products are made only to approved customers with an appropriate
credit history. It is the Company’s policy to monitor the financial standing of the customers on an ongoing basis to
ensure that the Company is exposed to a minimal credit risk. The maximum credit exposure associated with financial
assets is equal to the carrying amount.

62% (2022: 56%) of the Company’s total receivables at the reporting date are due from two (2022: two) major
customers in the oil and gas industry in Malaysia. The Directors are of the view that such credit risk is minimal in view
of the strength of the customers’ financial position and no history of default from these major customers.
For some trade receivables, the Company may obtain security in the form of guarantees, deeds of underwriting of
letters of credit which can be called upon if the counterparty is in default under the terms of the agreement.

An impairment analysis is performed at each reporting date to measure expected credit losses. The provision rates are
based on days past due and coverage by letters of credit and historical credit losses of the customers. The calculation
reflects the probability-weighted outcome, the time value of money and reasonable and supportable information
that is available at the reporting date about past events and current conditions. The Company has considered
expected oil price and geographical area which the debtor operates in and concluded that the effect on expected
changes in these factors do not significantly affect the historical credit loss rates. Generally, trade receivables are
written off if past due for more than one year unless it is covered by letters of credits. These letters of credit are
considered integral part of trade receivables and considered in the calculation of impairment.
Information about credit exposure on the Company’s trade receivables is disclosed in Note 17.