Annual report 2010 - plazacenters

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The Group limits its exposure to credit risk in respect to cash and deposits, including structured deposits and available for sale financial
assets by investing mostly in deposits and other financial instruments with counterparties that have a credit rating of at least investment
grade from international rating agencies. Given these credit ratings, management does not expect any counterparty to fail to meet
its obligations.
b. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its obligations when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Company’s Board of Directors and Audit Committee instructed the management to maintain during all times in the Company’s
reserves a net cash balance of at least EUR 40 million.
c. Market risk
Currency and inflation risk
Currency risk is the risk that the Group will incur significant fluctuations in its profit or loss as a result of utilizing currencies other than
the functional currency of the respective Group company.
The Group is exposed to currency risk mainly on borrowings (debentures issued in Israel and in Poland) that are denominated in a
currency other than the functional currency of the respective Group companies. The currencies in which these transactions primarily
are denominated are the NIS or PLN. As these currencies are subject to fluctuations, the Company is holding small amount of financial
instruments denominated in these currencies, and hedging them, where appropriate. Regarding currency and inflation risk hedging
of the debentures refer also to note 16.
Interest Rate Risk
The Group’s interest rate risk arises mainly from short- and long-term borrowing (as well as debentures). Borrowings issued at variable
interest rate expose the Group to variability in cash flows (mainly borrowings in USD). Borrowings issued at fixed interest rate expose
the Group to changes in fair value. Except for the debentures, the Group does not currently engage in hedging or use of other financial
arrangement to minimize the exposure to these risks. Regarding interest rate risk hedging of the debentures and bank facilities, refer
to note 16.
d. Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel,
technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal
and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all of the Group’s
operations. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the
Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary
responsibility for the development and implementation of controls to address operational risk is assigned to the senior management
within each business unit. This responsibility is supported by the development of overall Group standards for the management of
operational risk in the following areas:
• Requirements for appropriate segregation of duties, including the independent authorization of transactions.
• Compliance with regulatory and other legal requirements.
• Requirements for the periodic assessment of operational risks faced, and procedures to address the risks identified.
• IT controls and manuals.
• Training and professional development.
• Risk mitigation, including insurance where this is effective.
Capital management
The Company’s Board of Directors’ policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The Company’s Board of Directors also monitors the level of dividends
to ordinary shareholders.
Plaza Centers N.V. Annual report 2010111