AJ Lucas Group annual report 2007-08

Risk management policies are established to identify and analyse the risks faced by the Company and Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Company’s and Group’s activities. The Company and Group, through their training and management standards and procedures, aim
to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the Company’s and Group’s risk management policies and procedures
and reviews the adequacy of the risk management framework in relation to the risks faced by the Company and Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or the counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers. For the Company, it arises principally from receivables due from subsidiaries. The
maximum exposure to credit risk is the carrying amount of the financial assets.
Trade and other receivables: The Company’s and Group’s exposure to credit risk is influenced mainly by the individual characteristics of
each customer. The Group’s customer base consists of mainly government, semi-government and major public company customers. The demographics of
the Group’s customer base, including the default risk of the industry and location in which the customers operate, has less of an influence on credit risk.
New customers are analysed individually for creditworthiness, taking into account credit ratings where available, financial position, past experience
and other factors. This includes all major contracts and tenders approved by the Group Tender Committee.
In monitoring customer credit risk, customers are grouped by business segment, and then by their debtor aging profile. Monitoring of receivable
balances on an ongoing basis minimises the exposure to bad debts. There are no significant concentrations of credit risk within the Group.
A provision for impairment is recognised when there is objective evidence that a individual trade receivable is impaired.
Exposure to credit risk: The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:
Consolidated
Company
2008 2007 2008 2007
$’000 $’000 $’000 $’000
Trade and other receivables 56,912 28,262 6,064 4,189
Bank balances 16,612 18,222 5,519 13,512
Loans to controlled entities — — 49,889 31,795
73,524 46,484 61,472 49,496
Maximum exposure to credit risk for trade and other receivables at the reporting date
by business segment was:
Drilling 15,853 13,515 — —
Pipelines 25,711 3,684 — —
Construction and infrastructure 8,594 5,756 — —
Unallocated 6,754 5,307 6,064 4,189
56,912 28,262 6,064 4,189
Impairment losses: The ageing of the Group and Company’s trade receivables at the reporting date was:
Gross
2008
$’000
Impairment
2008
$’000
Consolidated
Gross
2007
$’000
Impairment
2007
$’000
The ageing of trade receivables at the reporting date was:
Not past due 38,135 — 14,463 —
Past due up to 30 days 7,826 — 4,094 —
Past due 31 to 120 days 2,953 — 4,248 —
Past due 121 days to one year 1,253 (9) 156 (7)
More than one year 7,187 (7,187) 7,189 (7,189)
57,354 (7,196) 30,150 (7,196)
There was nil movement in the allowance for impairment in respect of trade receivables during the year for the Group, as such the balance as at
30 June 2008 was $7,196,000 (2007: $7,196,000).
a year of milestones 55