Download - AHG Limited

Notes to the Consolidated Financial Statements
(continued)
Historic experience, current knowledge of the
products and the valuations from an independent
used car publication has been used in determining
any write downs to net realisable value. Details
regarding the write-down of vehicles to net
realisable value are shown at note 13.
Impairment of intangibles with indefinite
useful lives
The Group determines whether intangibles with
indefinite useful lives are impaired at least at each
reporting date under the criteria set out in AASB 136
Impairment of Assets. This requires an estimation
of the recoverable amount of the cash generating
units, to which the intangible is allocated, using a
value-in-use discounted cash flow methodology. The
assumptions used in this estimation of recoverable
amount and the carrying amount of intangibles with
indefinite useful lives, including sensitivity analysis,
are discussed in note 17.
Warranties
The Group uses a third party in the majority of
circumstances to determine the level of provision
required for mechanical warranties. Where the
Group does not use a third party, judgements have
been made in respect of the expected performance
of the vehicles delivered, number of customers
who will use the warranty and how often, and the
cost of fulfilling the performance of the mechanical
warranty. The related carrying amounts are
disclosed in notes 19 and 20.
3. Financial risk management
objectives and policies
The Group’s principal financial instruments
comprise; receivables; payables; commercial
borrowings; available-for-sale investments and cash
(including overdrafts) and short term deposits.
Risk exposure and responses
The Group’s activities expose it to a variety of
financial risks – foreign exchange risk, interest
rate risk, price risk, credit risk and liquidity risk.
The Group’s overall risk management framework
focuses on the effective management of its
financial risks arising through the automotive retail
and logistics businesses. The management program
establishes sound policy to minimise financial
risk and in particular, any uncertainty faced due
to volatility of Group cash flows. The Group uses
different methods to measure different types of risk
to which it is exposed – these include; sensitivity
analysis in the case of interest rate risk; and ageing
analysis for credit risk across its receivable balance
from both a business unit and Group perspective.
In addition the Group undertakes cash flow analysis
at regular intervals to manage its liquidity risk and
augment its annual cash flow budgeting process.
Risk management is monitored by the Audit &
Risk Management Committee which advises the
Board and reports on the status of business risks
through application of integrated risk management
programs aimed at ensuring risks are identified,
assessed and appropriately managed.
In addition, the Group has implemented a Financial
Risk Management Framework that seeks to:
• identify actual and potential financial
exposures, through timely information flow
within the Group;
• ensure effective management processes are
followed for the financial risks identified and
any exposure is contained within acceptable
levels to avoid / minimise losses;
• deliver managed outcomes in terms of
Australian dollar cash flows, employing an
approach that focuses on risk minimisation and
moderation of cash flow volatility;
• safeguard the Group’s financial resources by
adhering to authorised credit parameters,
appropriate levels of credit authority,
operational controls and credit guidelines;
• maintain the adequacy and appropriateness of
selected treasury facilities and lines of credit
in order to minimise the Group’s financial
exposure whilst meeting its short and long-term
liquidity needs;
• ensure that accounting policies adopted for
the treasury function are in accordance with
generally accepted accounting practices; and
• ensure that the taxation treatment of treasury
products is in accordance with income
tax regulations.
Under the Group’s Treasury Policy, a Treasury
Committee has been established comprising of
the Executive Director – Strategy and Planning,
Chief Financial Officer, General Manager - Finance,
Company Secretary and an external treasury
adviser. This Committee meets regularly, at
least on a quarterly basis, to review internal and
external reports, with minutes circulated to the
Board after each meeting. The Committee’s
responsibilities include:
• discussing current industry and financial market
trends, views and expectations;
• supervision of financial market activities and
exposures in terms of the potential impact on
the Group and Policy;
• reviewing current debt structures, with a
view to any top-up and/or restructuring
opportunities that may exist or may be
permitted;
• discussing and recommending appropriate
strategies for both short-term defensive and
long-term strategic hedging; and
• periodically reviewing required changes to the
Policy and making recommendation to the
Audit & Risk Management Committee (who
in turn make recommendations to the Board
where required).
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Automotive Holdings Group