ST Engineering Annual Report 2020

NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2020 (CURRENCY – SINGAPORE DOLLARS UNLESS OTHERWISE STATED) C16 Derivative financial instruments (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: Hedging reserve Group 2020 2019 $’000 $’000 Balance at 1 January (32,950) (424) Change in fair value: Foreign currency risk 38,057 (22,610) Interest rate risk (19,136) (9,832) Equity accounted joint ventures 763 (5,379) Amount reclassified to profit or loss: Foreign currency risk 15,635 (1,371) Amount included in the cost of non-financial items: Foreign currency risk – inventory purchases (1,890) 3,700 Tax movements on reserves during the year (8,051) 2,966 Balance at 31 December (7,572) (32,950) Derivative financial instruments and hedge accounting The derivative financial instruments are initially recognised at fair value on the date on 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. / ST ENG I NEER I NG 226