Page 140 - HRC_Annual_Report_2023

138 About HRC Value Creation Management Discussion Leadership
& Analysis

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

19 DERIVATIVE FINANCIAL ASSETS/(LIABILITIES) (continued)
Derivatives designated as hedging instrument (continued)
(a) Refining margin swap contracts (continued)

The effects of the refining margin swap contracts on the Company’s financial position and performance are as follows:
2023 2022
Carrying amount liability, net (RM’000) (149,887) (830,596)
Notional value (USD’000) 50,965 180,413
Maturity date January 2024 January 2023
to to
September 2024 September 2024
Hedge ratio (%) 100 100
Change in fair value of designated hedging instruments (RM’000) (129,177) (829,075)
Change in value of hedged item used to determine hedge
effectiveness (RM’000) 129,177 829,075
Gross margin per barrel (USD) 9.50 to 16.30 9.50 to 36.10

Derivatives not designated as hedging instrument
(a) Forward foreign exchange contracts
The Company enters into forward foreign currency contracts to protect the Company from movements in exchange
rates by establishing the rate at which foreign currency asset or liability will be settled. Forward currency contracts are
mainly used to hedge cash receipts and cash payments denominated in currency other than the functional currency of
the Company.
(b) Forward priced commodity contracts
The Company entered into crude purchase contracts with variability in the payables. The delivery and control of the crude
is transferred at delivery date. The Company recognised the purchase of the crude as inventory on delivery date based on
the forward price of the crude. The variability in the payable associated with the crude price gives rise to an embedded
derivative which is not closely related to the purchase contract. The embedded derivative is separated from the payables
relating to the purchase of inventory. The Company has elected to adjust and reflect subsequent changes in the fair value
of the embedded derivative as part of the cost of inventory.
(c) Commodity options, commodity swap contracts and refining margin swap contracts
The Company also uses commodity options, commodity swap contracts and refining margin swap contracts to manage
its commodity price risk and inventory holding cost. The Company does not designate these derivatives as hedging
instruments.

20 CASH AND CASH EQUIVALENTS

2023 2022
RM’000 RM’000
Bank balances 1,028,529 1,334,832
Less: Restricted cash (8,741) (101,224)

1,019,788 1,233,608

Restricted cash comprise of amounts held in a debt service accrual account associated with the medium term notes and
multi-currency revolving credit facilities.