NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2022 (CURRENCY - SINGAPORE DOLLARS UNLESS OTHERWISE STATED) C16 Derivative financial instruments (continued) Cash flow hedges (continued) The following table provides a reconciliation by risk category of components of equity and analysis of OCI items, net of tax, resulting from cash flow hedge accounting: Group Hedging reserve 2022 $’000 2021 $’000 Balance at 1 January (22,242) (7,572) Change in fair value: Foreign currency risk (37,653) (26,060) Interest rate risk 147,522 6,860 Equity accounted joint ventures 2,321 2,145 Amount reclassified to profit or loss: Foreign currency risk 17,442 (4,360) Interest rate risk (5,434) 2,781 Amount included in the cost of non-financial items: Foreign currency risk – inventory purchases 3,983 (2,389) Tax movements on reserves during the year 594 6,353 Balance at 31 December 106,533 (22,242) Derivative financial instruments and hedge accounting The derivative financial instruments are initially recognised at fair value on the date of which a derivative contract is entered into. Attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivative financial instruments are remeasured at their fair values. Any gains or losses arising from changes in the fair value of derivatives that do not qualify for hedge accounting are taken directly to the profit or loss. Designation of hedges At inception or upon reassessment of the hedge arrangement, the Group documents the relationship between hedging instrument and hedged item, and the methods that will be used to measure the effectiveness of the hedged relationship, as well as risk management policies and strategies in undertaking various hedged transactions. The Group also documents its assessment, both at inception and on an ongoing basis, the economic relationship between hedging instruments and hedged item, including whether derivatives designated as hedging instruments are highly effective in offsetting changes in fair values or cash flows of the hedged item. 214 ST ENGINEERING ANNUAL REPORT 2022
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