The Group KD Group and KD Group dd

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The KD Group Annual Report 2009 Human resource risk The risks in this area are carefully managed at the Group level and directly through individual companies in the Group, as employees are the key to our success. To mitigate the risk of excessive employee turnover, we educate and train our employees, attend to the working environment and general employee satisfaction, organise meetings of all employees, stimulate affiliation with the Group, strengthen the social security of employees with additional insurance, and by implementation of modern human resource policies and practices in line with the adopted human resource vision and strategy. More information about employees is included in chapter Human resources and their development. Reputation risk A potential loss due to a negative corporate or Group image is difficult to measure and even more difficult to correct. We maintain and augment the Group's reputation and boost the value of our brands in the eyes of our customers, business partners, owners, investors and regulators through good performance and by managing all other risks. We constantly communicate with the community and financially support numerous cultural and sporting events, and humanitarian campaigns. IT-related risk We constantly introduce new information support for work process at all companies in the Group. We manage this process through an appropriate organisational structure, the inclusion of specialist departments, internal auditing, diligent testing and project management. In 2009, the information systems of Group companies functioned well, without major interruptions that would have a significant impact on the company's operations. Legal risk Legal risks form an integral part of operational risks. We define these risks as a behaviour, the consequence of which is the legally justified intervention of a third party in the company's operations that causes it material or moral damage. This could arise as a result of violations of regulations, internal instructions, professional recommendations, contracts, good practices or ethical standards. These risks are managed through the adoption of internal rules of operation aimed at reducing the probability of harmful consequences and preventing actions caused by such circumstances. The legal function is integrated into the adoption of business decisions, providing for the timely detection of legal risks. Incidental risk Incidental events are quite rare but may have severe consequences for operations. The company protects itself against incidental risk through insurance or reinsurance contracts. Risk related to securities issued by KD Group d. d. The holders of securities issued by KD Group d. d. are exposed to the following risks: - Market risk: shares and bonds are sensitive to changes which the issuer cannot influence such as changes in the economy or legislation, crises, and natural and ecological disasters. - Liquidity risk: the risk of a security holder not being able to sell a security or only being able to sell it at a lower price owing to insufficient demand. - Credit risk: the risk of the bond issuer failing to pay interest and principal. KD Group d. d. can only influence the exposure to credit risk by managing other risks and thus influencing the stability and long-term growth of the Group. 44
The KD Group Annual Report 2009 Internal audit In 2009, the internal audit department, as an active member of the internal control system, helped the company and the KD Group achieve established objectives by stimulating a prudent and regulated method of evaluating and improving the effectiveness of procedures for controlling and managing risks and thus contributed to the generation of added value by providing independent and impartial findings and serving in an advisory role. In 2009, it also directly verified whether the internal control system is established, if it functions and whether it is effective in its objective to continue ensuring the legality, security, effectiveness and efficiency of operations and the protection of assets. Furthermore, the internal audit department was responsible for improving risk management and the recognition of the internal audit department within the Group by carrying out individual audits, through its advisory function and by organising training for all Group employees. Based on the internal audit department's strategy adopted in 2007 and uniform rules on internal audit planning and reporting, the internal audit department amended and expanded general internal audit rules in 2009 with the aim of achieving standardised actions, greater efficiency and the success of the internal audit function at the Group level. This led to adoption of a revised Document on the internal audit function. The revised document was drafted as a result of substantial amendments to the binding internal audit standards and changes in the management of KD Group d.d. (one-tier system) and represents the minimum standard applicable to the Group. Furthermore in 2009 we adopted the Policy of cooperation and development of the internal audit function of the KD Group with a view of utilising synergies, harmonisation, and with an aim of sharing the knowledge and best practices among internal audit services which are, in terms of their status and organisation, part of an independent and decentralised system. At the Group level, internal audit function is uniform to the extent that ensures that internal audit of the KD Group in individual subsidiary is involved in the selection of internal auditors, in annual preparation of plan of work, and in monitoring the implementation of recommendations and reporting in a manner that, in accordance with the professional recommendations, it acts as a coordination unit, and is charged with the development of standard internal audit methodology and general development of the internal audit function within the Group. The professional qualification of internal audit department employees is appropriate. Two internal auditors employed at KD Group d. d. are experienced in the areas of external and internal auditing and hold the relevant titles as bestowed by the Slovenian Institute of Auditors (certified internal auditor and certified accountant), as well as internationally recognised (CIA) and other titles (state internal auditor and state auditor). In 2009 we continued to carry out surveys of the audit subjects after completion of the internal audit (i.e. following a consolidated and final audit report). Based on the survey we drafted a plan of activities aimed at additional increase in the satisfaction of audit subjects and at raising internal audit's added value. Human resources and development At the Group KD Group we are aware that our employees are our important asset and investment for the future. With this in mind we devoted much effort into development, education and primarily promotion of innovative potential of our employees in all segments and at all levels of the Group. Therefore, we have specified what human resource management means and also redefined new roles of HR leaders as the key holders of the HRM function. Moreover, the Management devotes much attention to monitoring, measuring efficiency and particularly improving and upgrading the manner of work. We should also highlight the even more important role of internal communication and to this aim the most senior management of the Group was introduced and maintained dialog with all the employees. Within the framework of human resource strategy, we designed the concept of centralised HRM. Furthermore we redesigned and underlined the human resource management vision and mission and established its strategic goals. Key strategic goals of human resource management of the Group KD Group remain unchanged from one year to the other as these are of key importance for implementation of our vision. These goals include efficient HR organisation, interaction and orientation towards common goals, activities that are consistent with values, inter-cultural cooperation and employee mobility, excellent system of employee remuneration and motivation, as well as recognition in terms of professional competence and innovation of employees. 45
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