32 FINANCIAL RISK MANAGEMENT
(continued)
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. As at 31 December
2015, the Group has 38% (2014: 63%) of total receivables due from 2 (2014: 2) major customers, and approximately 37% (2014:
42%) of the Group’s revenue is attributable to sales transactions with these 2 (2014: 2) customers.
The Group has a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s
standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, where available,
and in some cases bank references. Otherwise, the credit quality of customers is assessed after taking account its financial
position and past experience with the customers. Credit exposure to customers is restricted by credit limits that are approved
by the Credit Control Committee at the entity level and the continuous monitoring by the Committee.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are
an individual or legal entity, whether they are a multinational corporation, wholesale, retail or end-user customer, geographic
location, industry, aging profile, maturity and existence of previous financial difficulties. Trade and other receivables relate
mainly to the Group’s related parties and multinational corporations.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and
other receivables. The main components of this allowance are a specific loss component that relates to individually significant
exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred
but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar
financial assets.
There are no other significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet.
Liquidity risk
The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to
finance the Group’s operations and to mitigate the effects of fluctuations in cash flows. The Group maintains sufficient level of
cash and cash equivalents to meet its working capital. When required, the Group also obtains short-term bridging arrangement
with banks to pay for their purchases of equipment.
Management monitors cash flow requirements through regular cash flow forecast carried out at the operating companies’
level in accordance with the working capital requirement. The Group sets asset productivity targets which vary by entity and
location taking into consideration the business environment that the entity operates in. Asset productivity targets used are
debtor and inventory turnover days.
In addition, the Group maintains total lines of credit of $136 million (2014: $115 million) for revolving credit and working capital
line facilities, at a margin over cost of funds.
Cash flow and fair value interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to
changes in market interest rates. The Group’s exposure to cash flow interest rate risks arises mainly from short-term floating
rate borrowings. The Group does not use derivative financial instruments to hedge its interest rate risk.
112
TELECHOICE INTERNATIONAL LIMITED
2015 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
