Operating risk management - Home Appliance Division

Operating risks include a reduction in economic benefits of the Group arising from the ability of unsuitable planning, performance and control of business processes and activities: production risks, information system risks, organisational risks, logistics risks, tax risks, and fire risks.

Production risk management refers to:

• operation of key equipment: key machines, tools, production lines and basic processing units,
• operation of infrastructure including smooth supply with energy products, providing infrastructural basis for adequate management of hazardous waste and operation of the central wastewater treatment plant,
• availability of production capacities, and
• inappropriate direct management of dangerous substances,
• the production risk is greater in line production and it is controlled by qualifications of employees and regular maintenance of production lines.

The Management Board of the Gorenje Group has assessed that the exposure to production risks is moderate.

The most important risks among the information system risks are related to the assurance of availability and response of the information system services depending on hardware and software. The exposure to these risks has been reduced by:

• the complete update of the SAP system environment based on the open-code operating system and high availability of installation of hardware and software,
• operation of the centre for continuous operation or safe secondary locations (i.e. Disaster Recovery Centre – DRC),
• changes in the architecture of server systems (server virtualisation),
• BCM (business continuity management) process control and the related measures,
• preliminary prepared measures for individual types of disturbances in the operation of the local computer network, supporting servers, global communications and network connections in the system,
• regular maintenance of hardware and software, communications and network connections,
• control of changes in the development of information systems,
• suitable training of employees and other measures.

The Management Board of the Gorenje Group has assessed that the exposure to information system risks is moderate.

• Organisational risks are associated with the non-observance of rules and regulations. Managers or department heads play a key role in the control of these risks since they are required to encourage the implementation of adequate procedures and provide for compliance of authorisation and responsibilities of individual employees. Simultaneously, the need for creativity and innovative spirit of separate working units must be taken into account while introducing rules and regulations. The Gorenje Group namely disapproves of processes that are too automated since the innovative spirit of the employees can thus be limited. In some cases violation of rules and regulations can cause serious damage, although these cases have already been assessed within individual risks. Such a risk may also include mismatched operation of functional organisational units due to which some urgently needed activities have already been eliminated. Such risks have been controlled by a complete process approach. The Management Board of the Gorenje Group has assessed that exposure to organisational risks is low.
• Logistics risks are associated with the increase in transport costs of products. Risks are assessed with respect to assumptions of movements in oil prices and prices of sea transport. Supply and demand are the most important factors influencing prices of sea transport, but oil prices influence road transport. The market of sea transport is undergoing a consolidation of lines in the northern Adriatic this year, which resulted in a lower supply and expected higher prices. Contracts concluded with transport companies include the option of modifying the price of transport if oil prices change, which actually represents the biggest risk element. A characteristic of the entire European territory is the lack of trucks in the markets that additionally contributed to the instability of the market and, thus, to increased risks last year. Lack of trucks is the result of high indebtedness of transport operators trying to restructure debts by disinvestments. The Management Board of the Gorenje Group has assessed that the exposure to logistics risks is moderate.
• Tax risks are associated with a correct interpretation of tax legislation and, thus, the related correct and timely accounting and payment of levies, possible changes in tax legislation and its implementation in daily business processes, provision of adequate documents, and others. The basic control measure is a consistent following of regulations of tax legislation. The said measure is implemented by monitoring of tax and legal practice, establishment of internal control mechanisms and intensive co-operation among the departments and companies, co-operation in all stages of business activities, preparation of adequate  documents for the support of adopted solutions, and similar. The reorganisation of the sale procedure among the Group companies (intragroup operations) increased the complexity of the risk management in the area of value added tax, which is managed with a broader standardisation of the tax treatment of transactions. As for operating with subsidiaries, risks are controlled by the implementation of a co-ordinated policy of transfer prices and the preparation of suitable documents. The Management Board of the Gorenje Group has assessed that the exposure to tax risks is high due to complexity of operation, large volume of international transactions, and complexity of tax legislation, but the probability of occurrence of risky events is low.
• Fire risks have been limited by regular assessment of fire danger on the basis of which all facilities have been equipped with active fire protection systems. The supervision over the performance of fire protection measures has been intensified, and the employees have been additionally trained in the area of fire protection. Lowering fire risks is our permanent concern. In 2011, premises of the purchase department, tools department and the environmental safety department were additionally equipped with fire-detection systems. For the purpose of increasing the safety of staff and lowering fire risks, workplace evacuation exercises are conducted on a regular basis. In 2011 a tactical firefighting exercise was carried out at two locations, whereas a workplace evacuation exercise was conducted at four locations.

The Management Board of the Gorenje Group has assessed that the exposure to fire risks is moderate.