Annual Report 2019

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2019 141 The United Laboratories International Holdings Limited Annual Report 2019 41. FINANCIAL INSTRUMENTS (Continued) Financial risk management objectives and policies (Continued) Market risk (Continued) Other price risk The conversion option and early redemption option derivatives of the Company’s convertible bonds carried at fair value exposed the Group to equity price risk. Equity price risk sensitivity analysis If the share price of the Company input to the valuation model for assessing the fair value of the conversion option and early redemption option derivatives of the Company’s convertible bonds had been 10% (2018: 10%) higher/lower while all other variables were held constant, the profit for the year ended 31 December 2019 would decrease/increase by approximately RMB60,976,000/RMB56,753,000 (2018: RMB30,513,000/ RMB23,456,000). If the expected volatility of share price of the Company input to the valuation model for assessing the fair value of such derivatives had been 10% (2018: 10%) higher/lower while all other variables were held constant, the profit for the year ended 31 December 2019 would decrease/increase by approximately RMB13,684,000/RMB11,004,000 (2018: RMB27,152,000/RMB26,955,000). Credit risk and impairment assessment As at 31 December 2019, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits and credit approvals. Before accepting any new customer, the Group assess the potential customer’s credit quality and defines credit limits by customer. Limits attributed to customers are reviewed once a year. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. The Group only accepts bills issued or guaranteed by reputable PRC banks if trade receivables are settled by bills and therefore the directors of the Company consider the credit risk arising from the endorsed or discounted bills is insignificant. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced. In addition, the Group performs impairment assessment under ECL model on trade balances based on provision matrix based on shared credit risk characteristics by reference to repayment histories for recurring customers and current past due exposure for the new customers. An impairment of RMB23,167,000 (2018: RMB25,518,000) has been recognised during the year. Details of the quantitative disclosures are set out below in this note. The credit risk on bank balances, pledged bank deposits and bills receivables are limited because the counterparties are banks mostly with high credit ratings of grade A or above assigned by international credit-rating agencies.