Annual Report 2010 - Baltika Breweries

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OAO Baltika Breweries and subsidiaries
24. Financial instruments and risk management
(a) Overview
The Group has exposures to the following risks from the use of financial
instruments:
Credit risk
Liquidity risk
Market risk
This note presents information about Group’s exposure to each
of the above risks, the Group’s objectives, policies and processes
for measuring and managing risk and the Group’s management
of capital. Further quantitative disclosures are included throughout these
consolidated financial statements.
Risk management framework
The Board of Directors has overall responsibility for the establishment
and oversight of the Group’s risk management framework. The Board
has established an Audit Committee which is responsible for developing
and monitoring the Group’s risk management policies. The Audit
Committee reports regularly to the Board of Directors on its activities.
The Group’s risk management systems are established to identify and
analyse the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management
systems are reviewed regularly to reflect changes in market conditions
and the Group’s activities. The Group, through its training and
management standards and procedures, aims to develop a disciplined
and constructive control environment in which all employees understand
their roles and obligations.
The Group’s Audit Committee oversees how management monitors
compliance with the Group’s risk management system and procedures
and reviews the adequacy of the risk management framework in relation
to the risks faced by the Group. The Audit Committee is assisted in its
oversight role by Internal Audit. Internal Audit undertakes both regular
and ad hoc reviews of risk management controls and procedures, the
results of which are reported to the Audit Committee.
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group’s receivables from
customers and loans and receivables.
(i) Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. However, the management also
considers the demographics of the Group’s customer base, including
the default risk of the industry in which customers operate, as these
factors may have an influence on credit risk, particularly in the currently
deteriorating economic circumstances. Approximately 17.9 % (2009:
14.9 %) of the Group’s revenue is attributable to sales transactions with
a single customer. Substantially all of Group’s customers are located
in the Russian Federation.
Management has established a credit policy under which each new
customer is analysed individually for creditworthiness before the Group’s
standard payment and delivery terms and conditions are offered.
The Group’s review includes background checks on new customers.
Purchase limits are established for each customer, and represent the
maximum open amount without requiring approval from the Credit
Committee; these limits are reviewed monthly. Customers that fail
to meet the Group’s benchmark creditworthiness may transact with the
Group only on a prepayment basis.
About 68 % of the Group’s customers have been transacting with the
Group for more than two years, and losses have occurred infrequently.
In monitoring customer credit risk, customers are grouped according
to their credit characteristics, including whether they are an individual
or legal entity, whether they are a wholesale or retail customers,
geographic location, maturity, and existence of any previous financial
difficulties. Trade receivables relate mainly to the Group’s wholesale
customers. The Group requires collateral in respect of trade receivables
in the form of bank guarantees. Credit evaluations are performed
on all customers, other than related parties, requiring credit over
a certain amount.
The Group establishes an allowance for impairment that represents its
estimate of incurred losses in respect of trade and other receivables
and investments. The main components of this allowance are a specific
loss component that relates to individually significant exposures, and
a collective loss component established for groups of similar assets
in respect of losses that have been incurred but not yet identified.
The collective loss allowance is determined based on historical
data of payment statistics for similar financial assets.
(ii) Loans and receivables
The Group limits its exposure to credit risk by only investing in liquid
securities in accordance with Group’s deposit policy and only with
counterparties that are mostly state-owned banks or the banks
approved by ultimate parent company. In order to determine the
amounts to be deposited with each bank the Group studies the financial
statements of the bank and bank credit ratings. The status of the
banks is reconsidered every 6 months. The Group does not expect any
counterparties to fail to meet its obligations.
(iii) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk at the reporting date
was:
Carrying amount
2010
’000 RUB
2009
’000 RUB
Trade and other receivables 4,298,175 7,176,223
Available-for-sale financial assets 87,251 9,781
Loans and receivables 3,895,312 9,051,299
Cash and cash equivalents 566,986 1,740,702
8,847,724 17,978,005
The maximum exposure to credit risk for trade receivables at the
reporting date by type of customer was:
Carrying amount
2010
’000 RUB
2009
’000 RUB
Wholesale customers 1,798,666 5,752,447
Retail customers 1,529,902 1,120,191
Accumulated impairment losses on
receivables
3,328,568 6,872,638
(86,708) (81,394)
3,241,860 6,791,244
The Group’s most significant customer, a domestic wholesaler, accounts
for RUB 960,911 thousand of the trade receivables carrying amount at
31 December 2010 (2009: RUB 998,900 thousand).
Substantially all the Group’s receivables relate to sales to customers
in Russia.