Annual Report - 2014

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105 104
KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2014
45
30. FINANCIAL INSTRUMENTS (CONTINUED)
Financial risk management objectives
The Group’s management monitors and manages the financial risks relating to the operations of the Group through
internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk
(including commodity price risk, interest rate risk and foreign currency risk), credit risk and liquidity risk. The group
seeks to manage this risk by using derivatives to hedge interest rate risk.
Market risk
Market risk is the risk that changes in market prices, such as commodity prices, interest rates and foreign exchange
rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while optimising the
return.
The Group is exposed to international commodity-based markets. As a result, it can be affected by changes in crude
oil, natural gas and petroleum product prices and interest rates and foreign exchange rates.
Price risk management
Volatility in oil and gas prices is a pervasive element of the Group’s business environment.
The Group is a seller of crude oil, which is typically sold under short-term arrangements priced in USD at current
market prices. In previous years the Group used oil put options to manage the risks of volatility in crude oil prices. At
the end of the current year the Group has not hedged its exposure to oil price risk.
The Group does not sell gas under any long-term agreements.
Price risk management (continued)
The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in oil and gas
prices by +10%. A positive number below indicates an increase in profit and decrease in price will have the opposite
effect.
Year ended
2014
(Restated)
Year ended
2013
USD 000’s USD 000’s
Impact on consolidated statement of income 27,076 26,249
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate
fluctuations arise. Exchange rate exposures are managed within approved policy parameters.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the
reporting date are as follows:
Liabilities Assets
2014 2013 2014 2013
USD 000’s USD 000’s USD 000’s USD 000’s
Egyptian Pound - - 22,935 3,425
Kuwaiti Dinar 33 22 3,441 3,125
Ukraine Hryvnia - 5,642 - 5,110
Russian Rouble - 4,778 - 4,466
KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2014
46
30. FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (continued)
Foreign currency sensitivity analysis
The Group’s main foreign currency exposure is to fluctuations in the Kuwait Dinar and Egyptian Pound.
The following table details the Group’s sensitivity to a 10% increase and decrease in the USD against Kuwaiti Dinar
and Egyptian Pound. The sensitivity analysis includes only outstanding Kuwaiti Dinar and Egyptian Pound
denominated monetary assets and liabilities and adjusts their translation at the year end for a 10% change in foreign
currency rates. A positive number below indicates an increase in profit and a negative number indicates decrease in
profit. All other variables are held constant. There have been no changes in the methods and the assumptions used in
the preparation of the sensitivity analysis.
Year ended
2014
Year ended
2013
Impact on consolidated statement of income USD 000’s USD 000’s
Egyptian Pound 2,294 343
Kuwaiti Dinar 341 310
Interest rate risk management
The Group is exposed to interest rate risk as it has borrowed funds from banks and financial institutions and has
placed funds in interest bearing time deposits with banks during the year.
The Group is exposed to interest rate risk because the entities within the Group borrow funds at both floating and
fixed interest rates. This risk is mitigated by the Group by maintaining an appropriate mix of floating and fixed rate
borrowings.
The Group’s exposure to interest rates on financial assets and liabilities are detailed in the liquidity risk management
section of this note.
The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in interest
rates of + 1% with effect from the beginning of the year. These changes are considered to be reasonably possible
based on observation of current market conditions. The calculations are based on the Group’s financial instruments
held at each consolidated statement of financial position date. All other variables are held constant. There has been
no change in the methods and the assumptions used in the preparation of the sensitivity analysis.
A positive number below indicates an increase in profit and negative number indicates decrease in profit. A 1%
decrease in the interest rates would have the opposite effect.
Year ended
2014
Year ended
2013
USD 000’s USD 000’s
Impact on consolidated statement of income - (1,645)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to
the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of
mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties
are continuously monitored and the aggregate value of transactions concluded is spread amongst approved
counterparties. On-going credit evaluation is performed on the financial condition of accounts receivable.