Annual Report 2020

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2020 132 The United Laboratories International Holdings Limited Annual Report 2020 39. 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% 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. The sensitivity analyses below had been determined based on the fair value movement of the derivative. 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% 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. Credit risk and impairment assessment At 31 December 2020, 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 assesses 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. The Group uses provision matrix to calculate ECL for trade receivables. The provision rates are based on internal credit risk as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.