The Group KD Group and KD Group dd

The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.5 Capital management
Board of Directors takes a decision on maintenance of significant (large) capital scope to ensure the confidence of all
participants and development of KD Group. As one of the strategic indicators, the Group defines return on equity as the ratio
between net profit for the year of the majority owner and the average value of the majority owner’s equity. The Group seeks to
keep a balance between large returns which can be reached by higher indebtedness, and the advantages and safety of a
powerful capital structure. Return on equity is one of the strategic indicators of the Group's annual plan, which is adopted on
the basis of monitoring developments in the environment and on maintaining an optimal capital structure. Return on equity is
calculated as the ratio between net profit / loss generated and the average value of the total equity, less the value of earnings.
Pursuant to the decision of the General Meeting of Shareholders, the parent company KD Group d. d. has established its own
share fund. On 31 December 2009 there were 62,201 ordinary shares KDHR, which accounts for 2.11% of issued capital and
51,306 preference shares KDHP, which represents 1.74% of issued capital.
The investment plan, optimal capital structure policy, expectations and interests of shareholders are the basis for
development of the dividend policy. The entity distributes dividends once a year. The Board of Directors of the parent
company takes a decision about the amount of proposed dividends. Dividends are distributed from the retained earnings of
the parent company, which is regulated in compliance with valid regulations in Slovenia; the decision about dividend
distribution is taken by the General Meeting of Shareholders.
KD Group d. d. has no specific aims about ownership by employees and has no share option programme. In the Group there
were no changes in the management of capital in 2009.
The parent company is not subject to capital requirements which could be set by the regulatory authority.
For an entity that has subsidiaries in the financial and insurance segment, capital requirements are provided by the regulatory
authority. The management of the entities provides the proper amount of capital (capital adequacy) according to the scope
and type of operations which are managed by the management and according to the risks to which they are exposed.
5.6 Fair value of financial assets and liabilities
Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in
an arm’s length transaction.
The Group establishes the fair value of financial assets in the following way:
- The fair value of investments in equity instruments that have a quoted market price on an active market is determined as
the product of the number of units of the instrument and its quoted market price.
- If there is no active market for the financial instruments, methods of assessing the fair value of a financial instrument are
used. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing
parties, if available, reference to the current fair value of another instrument that is substantially the same, and
discounted cash flow analysis. The Group has developed a model for assessing the fair value of non-listed equity
instruments; its appropriateness was assessed by an independent qualified expert. Using this model, the fair values of
significant financial investments in non-listed companies are estimated once a year on the basis of data available.
- The fair value of loans and deposits represents the discounted amount of estimated future cash flows expected to be
received. Expected cash flows are discounted at current market rates to determine fair value.
- The estimated fair value of borrowings not quoted on an active market is based on discounted cash flows using current
market rates. The aggregate fair value of quoted debt securities is calculated based on quoted market prices.
- For current receivables and liabilities, it is assumed their carrying value reflects their fair value.
- For a contract containing a discretionary participation feature, the fair value cannot be measured reliably.
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented on
the Group’s balance sheet at their fair value. Bid prices are used to estimate fair values of assets, whereas offer prices are
applied to liabilities.
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