Annual Report 2008 Sustainable design & engineering - Grontmij

Notes to the consolidated financial statements
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers, both before and after billing.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s
customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. The large
number of principals is a major reason for the absence of concentration of credit risk.
A credit policy has been established under which important new customers are analysed individually for creditworthiness before the standard
payment and delivery terms and conditions are offered by the Group’s entities. The major part of the Group’s customers has been transacting
with the Group for over four years, and losses have occurred infrequently.
The Group does not require collateral in respect of trade and other receivables.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The main
component of this allowance is a specific loss component that relates to individually significant exposures.
Liquidity risk
The liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group’s policy is to provide financial guarantees only to wholly-owned subsidiaries, when deemed necessary.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimising the return.
Currency risk
The Group’s sensitivity to changes in foreign currency exchange rates is relatively limited. A major part of both the Group’s income and expenses
is denominated in euro. Further, most of the income of the Group’s entities that have a functional currency other than the euro is used to offset
expenses denominated in the same currency.
Interest rate risk
The Group uses interest rate swaps to hedge its interest rate risk exposure arising from corporate financing activities, where considered
necessary. Interest rate swaps are measured at fair value, with changes in fair values booked through profit or loss unless the derivative is
designated and effective as hedge of future cash flows, in which case changes are booked in equity.
Capital management
The Executive Board’s policy is to maintain a strong capital base so as to maintain investor, principal, creditor and market confidence and to
sustain future development of the business. The Executive Board also monitors the level of dividends to ordinary shareholders.
The Group’s policy relating to capital management did not change in the year under review.
GRONTMIJ | ANNUAL REPORT 2008 87