Powering growth - Aztech Group Ltd - Investor Relations
Powering growth - Aztech Group Ltd - Investor Relations Powering growth - Aztech Group Ltd - Investor Relations
64a z t e c h a n n u a l r e p o r t 2 0 0 9F i n a n c i a l S t a t e m e n t s4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (cont’d)(b)Financial risk management policies and objectives (cont’d)There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risk.Market risk exposures are measured using sensitivity analysis indicated below.(i)Foreign exchange risk managementThe Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other thanthe respective functional currencies of Group entities. The currency that gives rise to this risk is primarily United States dollars.The Group manages foreign currency risk by matching assets and liabilities in the same currency denomination and supplementedwith appropriate financial instruments where necessary. The Group uses derivative financial instruments to mitigate the financialimpact associated with foreign currency fluctuation relating to certain forecasted transactions.The carrying amounts of foreign currency denominated monetary assets and monetary liabilities at the end of the reporting periodare as follows:GROUPCOMPANYLiabilities Assets Liabilities Assets2009 2008 2009 2008 2009 2008 2009 2008$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Singapore dollars - 54 3,000 - - - - -Renminbi 2,748 2,366 7,008 12,120 - - - -United States dollars 56,474 76,177 34,883 38,304 7,294 8,105 522 9,283Euro 1 9 87 282 - - - -Hong Kong dollars - - 3 2 - 1,124 - -Foreign currency sensitivityThe following analyses detail the sensitivity to a 5% increase and decrease in the Singapore dollar against the relevant foreigncurrencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel andrepresents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes onlyoutstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreigncurrency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where thedenomination of the loan is in a currency other than the currency of the lender or the borrower.If the Singapore dollar strengthens/weakens by 5% against the United States dollar with all other variables held constant, theGroup’s profit for the year ended December 31, 2009 would increase/decrease by $1,082,000 (2008 : $1,894,000) respectively.If the Singapore dollar strengthens/weakens by 5% against the United States dollar with all other variables held constant, theCompany’s profit for the year ended December 31, 2009 would decrease/increase by $339,000 (2008 : $59,000) respectively.The Group’s sensitivity to foreign currency has decreased during the current year mainly due to the decrease in foreign currencyborrowings.
F i n a n c i a l S t a t e m e n t sa z t e c h a n n u a l r e p o r t 2 0 0 9654 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (cont’d)(b)Financial risk management policies and objectives (cont’d)(ii)Interest rate risk managementThe Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with floatinginterest rates. The Group monitors the movements in interest rates on an ongoing basis and evaluates the exposure for its debtobligations.Interest rate sensitivityThe sensitivity analysis below have been determined based on the exposure to interest rates for cash and cash equivalents placedwith and borrowing from banks and financial institutions in Singapore, PRC and Hong Kong at the end of the reporting period. Forfloating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet was outstandingfor the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key managementpersonnel and represents management’s assessment of the reasonably possible change in interest rates.If interest rates had been 50 basis points higher/lower with all other variables held constant, the Group’s profit for the year endedDecember 31, 2009 would decrease/increase by $247,000 (2008 : $348,000 respectively). No analysis is prepared at theCompany level as the amount is immaterial.The Group’s sensitivity to interest rates has decreased during the current year mainly due to the decrease in average bankborrowings.(iii)Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. TheGroup has adopted the policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial lossesfrom default. Credit risk is managed through the application of credit approvals, credit limits and monitoring procedures. Whereappropriate, the Group obtains collateral from its customers. Cash terms, advance payments and letter of credits are required forcustomers of lower credit standing. An allowance for impairment is made where there is an identified loss event which, based onprevious experience, is evidence of a reduction in the recoverability of the cash flows.As at December 31, 2009, 61.7% (2008 : 55.2%) of trade receivables for the Group relate to amounts due from five (2008 : five)major customers. The Group manages concentration of credit risk by performing credit analysis procedures to assess the potentialcustomers’ credit quality and defines credit limits by customer before offering credit term to any new customer. The credit terms tocustomers are reviewed at least once a year.The Group places its cash with creditworthy institutions.The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as at the end of thefinancial year in relation to each class of recognised financial assets is the carrying amount of those assets as stated at the end ofthe reporting period, reduced by the effects of any netting agreements with counterparties.(iv)Liquidity risk managementIndividual operating entities within the Group are responsible for their own cash management, including the short term investmentof cash surplus and the raising of loans to cover expected cash demand, subject to approval by the parent company’s board whenthe borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor its liquidity requirementsand its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed linesof funding from major financial institutions to meet its liability requirements in the short and longer term. Undrawn facilities aredisclosed in Note 18.
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64a z t e c h a n n u a l r e p o r t 2 0 0 9F i n a n c i a l S t a t e m e n t s4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (cont’d)(b)Financial risk management policies and objectives (cont’d)There has been no change to the <strong>Group</strong>’s exposure to these financial risks or the manner in which it manages and measures the risk.Market risk exposures are measured using sensitivity analysis indicated below.(i)Foreign exchange risk managementThe <strong>Group</strong> is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other thanthe respective functional currencies of <strong>Group</strong> entities. The currency that gives rise to this risk is primarily United States dollars.The <strong>Group</strong> manages foreign currency risk by matching assets and liabilities in the same currency denomination and supplementedwith appropriate financial instruments where necessary. The <strong>Group</strong> uses derivative financial instruments to mitigate the financialimpact associated with foreign currency fluctuation relating to certain forecasted transactions.The carrying amounts of foreign currency denominated monetary assets and monetary liabilities at the end of the reporting periodare as follows:GROUPCOMPANYLiabilities Assets Liabilities Assets2009 2008 2009 2008 2009 2008 2009 2008$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Singapore dollars - 54 3,000 - - - - -Renminbi 2,748 2,366 7,008 12,120 - - - -United States dollars 56,474 76,177 34,883 38,304 7,294 8,105 522 9,283Euro 1 9 87 282 - - - -Hong Kong dollars - - 3 2 - 1,124 - -Foreign currency sensitivityThe following analyses detail the sensitivity to a 5% increase and decrease in the Singapore dollar against the relevant foreigncurrencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel andrepresents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes onlyoutstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreigncurrency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the <strong>Group</strong> where thedenomination of the loan is in a currency other than the currency of the lender or the borrower.If the Singapore dollar strengthens/weakens by 5% against the United States dollar with all other variables held constant, the<strong>Group</strong>’s profit for the year ended December 31, 2009 would increase/decrease by $1,082,000 (2008 : $1,894,000) respectively.If the Singapore dollar strengthens/weakens by 5% against the United States dollar with all other variables held constant, theCompany’s profit for the year ended December 31, 2009 would decrease/increase by $339,000 (2008 : $59,000) respectively.The <strong>Group</strong>’s sensitivity to foreign currency has decreased during the current year mainly due to the decrease in foreign currencyborrowings.
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