Annual Report 2007 - Global Energy Development

42 Notes to the financial information Global Energy Development PLCAnnual report 2007Notes to the financial information continuedFor the twelve months ended 31 December 200723. Financial InstrumentsFinancial instruments – risk managementThe Group is exposed through its operations to the following risks:••••Credit risk.Cash flow interest rate risk.Foreign exchange risk.Liquidity risk.In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describesthe Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitativeinformation in respect of these risks is presented throughout these financial statements.There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processesfor managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.Principal financial instrumentsThe principal financial instruments used by the Group, from which financial instrument risk arises are as follows:•••••Trade receivables.Cash at bank.Short-term investments.Trade and other payables.Convertible loan notes.General objectives, policies and processesThe Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retainingresponsibility for them it has delegated the authority for designing and operating processes that ensure the effective implementationof the objectives and policies to the Group’s finance function. The Board receives monthly reports from the Group Finance directorthrough which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.The overall objective of the Board is to set policies that seek to reduce as far as possible without unduly affecting the Group’scompetitiveness and flexibility. Further details regarding these policies are set out below:Credit riskCredit risk is the risk of financial loss to the Group if a customer or a counterpart to a financial instrument fails to meet its contractualobligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the creditrisk of new customers before entering contracts. Such credit ratings are taken into account by local business practices. The Group’sreview includes external credit ratings, when available. Potential customers that fail to meet the Group’s benchmark credit worthinessmay transact with the business on a prepayment basis only.Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financialinstitutions, only independently rated parties with minimum rating “A” are accepted.The Group does not enter into derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate suchrisks if it is sufficiently concentrated.The Group monitors the utilisation of credit ratings and available credit evaluation information as appropriate and at the reporting datedoes not envisage any losses from non-performance of counterparties, other than the provision created in relation to the unitisationnegotiations and the related receivable (see note 15).