251 F INANC IAL Statements Sect ion 05 Annual Report 2022 NOTES TO THE F INANC I AL STATEMENTS For the year ended 31 December 2022 45. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group reviews and agrees policies and procedures for the management of these risks to minimise the potential adverse effects of these risks on the financial performance of the Group. It is, and has been throughout the current financial year and previous financial year, the Group’s policy that no derivatives shall be undertaken except for the use as hedging instruments. The Group does not apply hedge accounting. The following sections provide details regarding the Group’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks. (a) Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including cash and bank balances), the Group minimises credit risk by dealing exclusively with high credit rating counterparties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Exposure to credit risk At the reporting date, the Group’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statements of financial position. Information regarding credit enhancements for trade and other receivables is disclosed in Note 24. The Group and the Company are exposed to credit risk in relation to financial guarantee contracts provided as disclosed in Note 43, representing the maximum amount the Group and the Company could pay if the guarantee is called on. As at the reporting date, there was no loss allowance for impairment as determined by the Group and the Company for the financial guarantee contracts. The financial guarantee contracts have not been recognised since the fair value on initial recognition was not material due to directors regard the value of the credit enhancement to be minimal and the likelihood of default to be low. Credit risk concentration profile The Group determines concentrations of credit risk by monitoring the sector profile of its trade and other receivables on an ongoing basis. The credit risk concentration profile of the Group’s trade and other receivables at the reporting date are as follows: At the reporting date, approximately: - 47.9% (2021: 51.0%) of the Group’s trade receivables were due from environment sector customers. - 25.7% (2021: 19.9%) of the Group’s trade receivables were due from engineering services sector customers. - 26.4% (2021: 29.1%) of the Group’s trade receivables were due from energy sector customers. - 3.0% (2021: 6.3%) of the Group’s trade and other receivables were due from related parties and an associate.
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