measure and monitor the processes and report results ... - Refresco.de

Financial review 2010
3 Financial risk management
3.1 Financial risk
The Group has exposure to the following risks as regards its
use of financial instruments:
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Credit risk
Liquidity risk
Market risk
This note provides information regarding the exposure of
the Group to each of the above risks, the objectives, policies
and processes for measuring and managing risk, and the
management of capital. Further quantitative disclosures are
included throughout these consolidated financial statements.
The Executive Board has the responsibility for the
establishment and oversight of the risk management
framework of the Group.
Risk management policies of the Group are established to
identify and analyze the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and
in the activities of the Group. Through its training program and
its management standards and procedures, the Group aims to
develop a disciplined and constructive control environment in
which all employees understand their roles and responsibilities.
The Supervisory Board oversees management’s monitoring of
compliance with the risk management policies and procedures
of the Group and it reviews the adequacy of the risk management
framework in relation to the risks faced by the Group.
3.1.2 Credit risk
Credit risk represents the risk that counter parties fail to meet
their contractual obligations, and arises principally in the
receivables from customers, cash and cash equivalents,
derivative financial instruments and deposits with banks and
financial institutions. The Group does not have any significant
concentration of credit risk. In order to reduce the exposure
to credit risk, the Group carries out ongoing credit evaluations
of the financial position of customers but generally does not
require collateral. Use is made of a combination of independent
ratings and risk controls to assess the credit quality of the
customer, taking into account its financial position, past
experience and other factors. Sales are subject to payment
conditions which are common practice in each country.
The banks and financial institutions used as counterparty
for holding cash and cash equivalents and deposits and in
derivative transactions can be classified as high credit quality
financial institutions (minimal: A rating).
The Group has policies that limit the amount of credit exposure
to individual financial institutions. Management believes that
the likelihood of losses arising from credit risk is remote
particularly in the light of the diversification of activities.
3.1.3 Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet
its financial obligations as they fall due. The approach of the
Group to managing liquidity risk is to ensure, as far as possible,
that it always has sufficient liquidity to meet its liabilities when
due, under both normal and more extreme conditions, without
incurring unacceptable losses or risking damage to the
reputation of the Group.
The Group has a clear focus on financing long­term growth
as well as current operations. Strong cost and cash
management and controls over working capital and capital
expenditure proposals are in place to ensure effective and
efficient allocation of financial resources.
3.1.4 Market risk
Currency risk
The Group is exposed to currency risk mainly on purchases
denominated in USD. At any point in time the Group hedges 80
to 100 percent of its estimated foreign currency exposure on
forecasted purchases for the following 12 months. The Group
uses currency option contracts and forward exchange contracts
to hedge its currency risks, most of which have a maturity date
of less than one year from the reporting date. Where necessary,
forward exchange contracts are rolled over on maturity.