Annual - Johnson Electric

2. Principal accounting policies (Cont’d)
2.22 DIVIDEND DISTRIBUTION
NOTES TO THE ACCOUNTS
Dividend distribution to the Company’s equity holders is recognised as a liability in the Group’s financial
statements when the dividends are approved by the Company’s equity holders.
2.23 CONTINGENT LIABILITIES
A contingent liability is a possible obligation that arises from past events and whose existence will only be
confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the
control of the company. It can also be a present obligation arising from past events that is not recognised
because it is not probable that outflow of economic resources will be required or the amount of obligation
cannot be measured reliably.
A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the
probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.
3. Financial risk management
3.1 FINANCIAL RISK FACTORS
The Group’s activities expose to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk,
interest rate risk and price risk. The Group’s overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury department (Group Treasury) according to the Group
policy, Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s
operating units.
(a) Foreign exchange risk
The Group operates globally and is thus exposed to foreign exchange risk. To manage the foreign exchange
risk, forward currency and options contracts are used with a view to reducing the net exposure to currency
fluctuations.
(b) Credit risk
The Group has no significant concentrations of credit risk. It has policies in place to evaluate the credit
risk of customers. The Group normally grants credit term ranging from 30 to 90 days to its trade customers.
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