Financial risk management - Home Appliance Division
2011, internal financial policies were followed in the field of financial risk management. The policies include starting points for their efficient and systematic management. Objectives of the process of financial risk management are:
- achievement of stability in operation and reduction in exposure to individual risks to an acceptable level,
- increase in value of the companies and improvement of their credit standing,
- increase in financial revenue or reduction in financial expenses, and
- elimination or reduction in the effect of unforeseeable loss events.
In the Gorenje Group we defined the following key financial risks: credit risks, currency risks, interest rate risks, and liquidity risks.
Exposure to individual kinds of financial risks and measures for the protection against them have been carried out and audited on the basis of effects on cash flows. In scope of regular activities, adequate protective activities (hedging) have been performed in the business, investment, and financial fields for the protection against financial risks.
Due to the difficult macro-economic situation in the year 2011, special attention was paid to credit risks that include all risks where economic benefits of the Group are reduced because of the non-fulfilment of contractual obligations of business partners (buyers). They were controlled by:
- protection of the major portion of operating receivables at Slovene Export Company - Slovenska izvozna družba – Prva kreditna zavarovalnica, d.d. - and other insurance companies,
- additional insurance of risky receivables due from customers by bank guarantees and other insurance facilities,
- regular supervision of operation and limitation of exposure to new and existing business partners,
- joint and chain off-setting operations with buyers,
- systematic and active processes controlling credit limits and recovery of receivables.
The Management Board of the Gorenje Group has assessed that the exposure to credit risks is increased, but it is moderate due to the measures mentioned v.s. hedging instruments.
With respect to the geographic diversification of operations, the Gorenje Group is fully exposed to foreign exchange risks, where the economic benefits of the company may decrease due to changes in the exchange rate of an individual currency. The exposure of the balance sheet has been considered in risk assessment. Among foreign exchange risks, those risks prevail that arise from business activities in the markets of Serbia, Great Britain, the Czech Republic, Slovakia, Poland, Hungary, Croatia, Turkey, and in all US dollar markets. Special attention has been paid to the natural reconciliation of foreign exchange risks and adjustment of operation that offer the company long-term reduction in exposure to fluctuations in foreign exchange risks – i.e. by balancing sales and purchasing. Additionally, futures contracts and short-term borrowings in local currencies have been used as protection against short-term currency fluctuations. Irrespective of the measures taken against foreign exchange risks and due to important macro-economic changes and fluctuations mostly in Eastern European currencies, the Management Board of the Gorenje Group has assessed that the exposure to foreign-exchange risks is increased.
At the end of the year 2011, the share of loans with a fixed interest rate in the Gorenje Group amounted to 45.9 percent. Due to the expected increases in variable interest rates, starting points were prepared in 2011 in order to increase the share of loans with a fixed interest rate and of derivative financial instruments in order to improve the protection against interest risks. The Management Board of the Gorenje Group has assessed that the exposure to interest risks is increased.
Liquidity risk includes risks associated with the lack of financial resources available and, consequently, the inability of the Group to settle its liabilities within the time limits agreed.
In 2012, loans granted to the Gorenje Group in the amount of TEUR 205,891 will fall due, and discussions with banks concerning their refinancing have already been held. As of the 31 December 2011, the liquidity reserve amounted to TEUR 231,812 and consisted of non-utilised revolving facilities, non-utilised long-term credit lines, fixed short-term deposits in banks and funds in the accounts of the Gorenje Group. It provides adequate short-term balancing of cash flows and decreased short-term liquidity risk.
The risk of short-term liquidity of the Gorenje Group has been assessed as moderate due to efficient management of cash, suitable and available credit lines for short-term balancing of cash flow, high rate of financial flexibility and a favourable approach to financial markets and sources.
The risk of long-term liquidity has been, as a result of successful operations, assessed as moderate due to efficient asset management, sustained ability of generating cash flows from operating activities and suitable equity structure. The Gorenje Group has prepared a plan of long-term loan servicing, arising from the Gorenje Group's strategic plan by the year 2013 that defines exact the amount of debt maturity per year and sources for its refinancing.
The Management Board of the Gorenje Group has assessed that the Gorenje Group's exposure to the liquidity risk is moderate.