Annual Report 2016
131
Financial Section
4 Financial Risk Management and Fair Value Estimation
(continued)
(a) Market risk
(continued)
(ii) Interest rate risk
(continued)
If interest rates had been 100 basis points (2015: 100 basis points) higher/lower with all other variables held
constant, the Group’s profit before taxation would have been HK$126.6 million lower or HK$128.2 million higher
respectively (2015: HK$161.3 million higher or HK$156.1 million lower). The sensitivity analysis has been
determined assuming that the change in interest rates had occurred throughout the year and had been applied
to the exposure to interest rate risk for financial instruments in existence at the end of the reporting period. The
100 basis points (2015: 100 basis points) increase or decrease represents management’s assessment of a
reasonably possible change in those interest rates which have the most impact on the Group over the period
until the end of next reporting period. Changes in market interest rates affect the interest income or expense of
non-derivative variable-interest financial instruments. As a consequence, they are included in the calculation of
profit before taxation sensitivities.
(iii) Price risk
The Group is exposed to equity securities price risk arising from the listed and unlisted equity investments held
by the Group. Gains or losses arising from changes in the fair value of available-for-sale financial assets and
financial assets at fair value through profit or loss are dealt with in equity and the consolidated income
statement respectively. The performance of the Group’s listed and unlisted equity investments are monitored
regularly, together with an assessment of their relevance to the Group’s strategic plans. The Group is also
exposed to other price risk arising from fair value of certain interest rate swaps which is determined based on
the in-house indexes of banks. Changes in fair value of these interest rate swaps are dealt with in the
consolidated income statement. The Group is not exposed to commodity price risk.
At 30 June 2016, if the price of listed and unlisted equity investments in available-for-sale financial assets had
been 25% higher with all other variables held constant, the Group’s investment revaluation reserve would have
been HK$2,969.8 million (2015: HK$1,727.3 million) higher. If the price of listed and unlisted equity investments
in available-for-sale financial assets had been 25% lower with all other variables held constant, the Group’s
profit before taxation and investment revaluation reserve would have been HK$487.6 million and HK$2,482.2
million (2015: HK$28.6 million and HK$1,698.7 million) lower respectively. The sensitivity analysis has been
determined based on a reasonable expectation of possible valuation volatility over the next 12 months.
At 30 June 2016, if the price of listed and unlisted equity investments in financial assets at fair value through
profit or loss had been 25% higher/lower with all other variables held constant, the Group’s profit before
taxation would have been HK$173.8 million (2015: HK$211.8 million) higher/lower. The sensitivity analysis has
been determined based on a reasonable expectation of possible valuation volatility over the next 12 months.
(b) Credit risk
The credit risk of the Group mainly arises from deposits with banks, trade and other debtors and balances receivable
from investee companies, joint ventures, associated companies and debt securities. The exposures to these credit
risks are closely monitored on an ongoing basis by established credit policies in each of its core businesses.
Bank deposits are mainly placed with high-credit-quality financial institutions. Trade debtors mainly include
receivables from sale and lease of properties and other services. Loans receivable included in other non-current
assets normally carry interest at rates with reference to prevailing market interest rate and are secured by collaterals.
The Group carry out regular reviews and follow-up actions on any overdue amounts to minimise exposures to credit
risk. There is no concentration of credit risk with respect to trade debtors from third party customers as the customer
bases are widely dispersed in different sectors and industries.
In addition, the Group monitor the exposure to credit risk in respect of the financial assistance provided to
subsidiaries, joint ventures and associated companies through exercising control, joint control or significant influence
over their financial and operating policy decisions and reviewing their financial positions on a regular basis.
Investment in debt securities are limited to financial institutions or investment counterparty with high quality.
The Group provides guarantees to banks in connection with certain property purchasers’ borrowing of mortgage loans
to finance their purchase of the properties until the issuance of the official property title transfer certificates by the
relevant authority in the Mainland China. If a purchaser defaults on the payment of its mortgage during the term of
the guarantee, the bank holding the mortgage may demand the Group to repay the outstanding amount under the
loan and any accrued interest thereon. Under such circumstances, the Group is able to retain the purchaser’s deposit
and sell the property to recover any amounts paid by the Group to the bank. Therefore the Group’s credit risk is
significantly reduced. Nevertheless, the net realisable values of the relevant properties are subject to the fluctuation
of the property market in general, the Group assesses at the end of each reporting period the liabilities based on the
current estimates of future cash flows. As at 30 June 2016 and 2015, no provision on the above guarantees to banks
had been made in the consolidated financial statements.
