Page 146 - Annual Report 2014

2.23 Derivative financial instruments Overview

The Group uses interest rate swaps and forward foreign exchange contracts to hedge its exposure to interest rate risks and
foreign exchange risks arising from operational, financing and investment activities. In accordance with its treasury policy,
the Group does not hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial Strategy
instruments are remeasured at fair value prevailing at reporting date. The gain or loss on remeasurement to fair value is
recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any
resultant gain or loss depends on the nature of the item being hedged as described in Note 2.24.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the Performance
reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair
value of forward exchange contracts is their quoted market price at the reporting date, being the present value of the quoted
forward price.

2.24 Hedging Governance

Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is
recognised directly in other comprehensive income and presented in the Hedging Reserve in equity.

When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or the Financials
forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge
accounting is applied, the associated cumulative gain or loss is removed from other comprehensive income and included in
the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently
results in the recognition of a financial asset or financial liability, the associated gains and losses that were recognised in
other comprehensive income are reclassified into the income statement in the same period or periods during which the asset
acquired or liability assumed affects the income statement (i.e. when interest income or expense is recognised).

For other cash flow hedges, the associated cumulative gain or loss that was recognised in other comprehensive income is
removed and recognised in the income statement in the same period or periods during which the hedged forecast transaction
affects the income statement. The ineffective part of any gain or loss is recognised immediately in the income statement.

When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in
other comprehensive income and is recognised in accordance with the above policy when the transaction occurs. If the hedged
transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in other comprehensive
income is recognised immediately in the income statement.

Hedge of monetary assets and liabilities

Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a recognised
monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in
the income statement.

2.25 Segment reporting

With the adoption of FRS 108, segment information is presented based on the information reviewed by chief operating decision
maker (“CODM”) for performance assessment and resource allocation.

The Group operates primarily in Singapore and delivers its Mobile, Pay TV, Broadband, Fixed network services and equipment
sales on an operationally integrated network, customer service, sales, marketing and administration support. Based on the
financial information regularly reviewed by the CODM, the Group has one operating and reporting segment.

StarHub Ltd | Annual Report 2014 143