Powering growth - Aztech Group Ltd - Investor Relations

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.