Annual Report 2021

ANNUAL REPORT 2021 171 37. FINANCIAL RISK MANAGEMENT 37.1 Financial risk factors The Group’s principal activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk, and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise any potential adverse effects on the Group’s financial performance. Risk management is carried out by senior management of the Group under policies approved by the directors of the Company. (i) Market risk (a) Foreign exchange risk Majority of the subsidiaries of the Company operate in Mainland China and most of their transactions are denominated in Renminbi, Hong Kong dollar or United States dollar. The Group is exposed to foreign exchange risk primarily through sales and purchases, capital expenditure and expenses transactions that are denominated in currencies other than the functional currency of the subsidiaries. The Group considers its foreign currency exposure is mainly arising from the exposure of Hong Kong dollar against Renminbi, United States dollar, Euro and Brazilian Real. The Group manages its exposures to foreign currency transactions by monitoring the level of foreign currency receipts and payments. The Group ensures that the net exposure to foreign exchange risk is kept to an acceptable level from time to time. The Group is presently not using forward exchange contracts to hedge foreign exchange risk arising from sales and purchase, capital expenditure and expenses transactions. The Group also regularly monitors its portfolio of local and international customers and the currencies in which the transactions are denominated so as to minimise the Group’s exposure to foreign exchange risk. As at 31 December 2021, 61% (2020: 59%) of the Group’s borrowings are denominated in United States dollar, 23% (2020: 24%) are denominated in Renminbi, 3% (2020: 4%) are denominated in Euro, 2% (2020: 3%) are denominated in Brazilian Real and 11% (2020: 10%) are denominated in Hong Kong dollar. Majority of the Group’s operating subsidiaries draw loans in their functional currencies to finance their funding requirements and no significant foreign exchange risk is expected to arise from these borrowings. The Group also utilised its United States dollar and Renminbi denominated notes payable to finance its capital investments and working capital.