NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
77
CITIC ENVIROTECH LTD.
Annual
Report
2015
4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS
MANAGEMENT
The Group has documented financial risk management policies. These policies set out the Group’s
overall business strategies and its risk management philosophy. The Group’s overall financial risk
management programme seeks to minimise potential adverse effects of financial performance of the
Group. Management provides written principles for overall financial risk management and written
policies covering specific areas, such as market risk (including foreign exchange risk, interest rate
risk, equity price risk), credit risk, liquidity risk, cash flow interest rate risk, use of derivative financial
instruments and investing excess cash. Such written policies are reviewed annually by management
and periodic reviews are undertaken to ensure that the Group’s policy guidelines are complied
with. Risk management is carried out by the Finance Department under the policies approved by
management.
The Group does not hold or issue derivative financial instruments for speculative purposes.
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.
(a)
Capital risk management policies and objectives
The Group manages its capital to ensure that entities in the Group will be able to continue as
a going concern while maximising the return to shareholders through the optimisation of the
debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings, cash
and cash equivalents and equity attributable to owners of the Company, comprising paid up
capital, reserves and retained earnings.
The Group is required by loan and medium term note covenants imposed by banks to maintain
a minimum shareholders’ equity, maximum gearing ratio, minimum net debt to shareholders’
equity ratio, minimum earnings before income tax, depreciation and amortisation to net
finance charge ratio and maximum dividend ratio.
The Group’s management reviews the capital structure on an on-going basis. As part of this
review, management considers the cost of capital and the risks associated with each class of
capital. Additionally, management maintains the Group’s shareholders’ equity and gearing
ratio within a set of range to comply with the loan covenants imposed by the banks. Based
on recommendations of management, the Group balances its overall capital structure through
the payment of dividends, new share issues and share buy-backs as well as the issuance of new
debt or the redemption of existing debt.
The Group’s overall strategy remains unchanged from the prior year. As at the end of the
reporting period, the Group is in compliance with all capital requirements on its external
borrowings.
(b)
Financial instruments subject to offsetting, enforceable master netting arrangements and
similar agreements
The Group and the Company do not have any financial instruments which are subject to
offsetting, enforceable master netting arrangements or similar netting agreements.
