Page 107 - ar2011

Risk Management Policies and Processes
NATURAL COOL HOLDINGS LIMITED
Annual Report 2011 105
Foreign Exchange Risk
The foreign exchange risk of the Group arises from sales, purchases and borrowings that are denominated
in foreign currencies. The currencies giving rise to the risk are US dollars, Hong Kong dollars and Japanese
Yen. While the Group does not have any formal hedging policies against foreign exchange fuctuation, we
continuously monitor the exchange rates of the major currencies.
Credit Risk
Credit risk is managed through the application of credit approvals, setting credit limits and monitoring
procedures. Our cash balances are placed with banks and regulated fnancial institutions.
It is our Group’s policy to sell to a diverse creditworthy customer base so as to mitigate our credit risk.
Cash terms and/or advance payments are required for customers with lower credit rating. While the Group
faces normal business risks associated with ageing collections, we adopt the policy of making specifc
provisions once trade debts are deemed not collectible. Accordingly, our Group does not expect to incur
material credit losses on our risk management or other fnancial instruments.
Interest Rate Risk
Our Group’s exposure to changes in interest rates relates primarily to interest-bearing fnancial assets and
liabilities. Interest rate risk is managed on an on-going basis with the objective of limiting the extent to
which net interest expenses could be affected by an adverse movement in interest rates.
We also obtain fnancing through bank borrowings and fnance lease arrangements. It is the Group’s policy
to obtain the most favourable interest rates available without increasing our exposure.
Liquidity Risk
The objective of liquidity management is to ensure that the Group has suffcient funds to meet its
contractual and fnancial obligations. To manage liquidity risk, we monitor our net cash fow and maintain a
level of cash and cash equivalents deemed adequate by management for working capital purposes so as
to mitigate the effects of fuctuations in cash fows.
Derivative Financial Instrument Risk
The Group does not hold or issue derivative fnancial instruments.