ANNUAL REPORT 2008 - Gorenje Group

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(vi) Derivatives
The fair value of derivatives is estimated as the present value of future cash flows, taking into account
the market price of equivalent derivatives at the reporting date.
(vii) Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of
future principal and interest cash flows, discounted at the market rate of interest at the reporting
date. In respect of the liability component of convertible notes, the market rate of interest is determined
by reference to similar liabilities that do not have a conversion option. For finance leases the
market rate of interest is determined by reference to similar lease agreements.
5. Financial risk management
In respect of financial risk management, the internal financial policies comprising the bases for efficient
and systematic risk management were observed in 2008. The objectives of risk management
are:
• to achieve stability of operations and to reduce risk exposure to an acceptable
level,
• to increase the value of companies and the impact on their financial standing,
• to increase financial income and/or decrease financial expenses, and
• to nullify and/or decrease the effects of exceptionally damaging events.
In the Gorenje Group, the following key types of financial risks have been defined:
Financial risks
Credit risk
Currency risk
Interest rate risk
Liquidity risk
The exposure to each type of risk and the hedge measures to be applied are judged and implemented
on the basis of their effects on the cash flows. To hedge against financial risks in the course
of ordinary business activities, relevant hedging activities have been conducted in the area of operating,
investing and financing activities.
In 2008, in the light of the strained macroeconomic situation, more attention was paid to the credit
risk which includes all risks where the failure of a party (a buyer) to discharge contractual obligations
results in a decrease in economic benefits of the Company. The credit risk was managed by
application of the following sets of measures:
• Insurance of a major portion of operating receivables against credit risk with SID
– Prva kreditna zavarovalnica, d.d. (SID - First Credit Insurance Company Inc.,
Ljubljana) and other insurance companies;
• Additional collateralisation of riskier trade receivables by bank guarantees, and
other security instruments;
• Regular monitoring of operation and financial standing of new and existing business
partners, and limitation of exposure to certain business partners;
• Implementation of mutual and chain compensation with buyers;
• Systematic and active control of credit limits and collection of receivables.
With regard to the above stated hedging measures, the management of the Gorenje Group estimates
the credit risk exposure to be moderate.
With regard to the geographic diversification of the its operations, the Gorenje Group is strongly
exposed to the currency risk, which is the risk that the economic benefits of the Company may be
decreased due to changes in foreign exchange rates. When assessing currency risk exposure, both
cash flow exposure and balance sheet exposure have been considered. The currency risk mainly
results from business activities in the markets of Serbia, Great Britain, Czech Republic, Slovakia,
Poland, Hungary, Croatia, and the US dollar markets. A greater attention was paid to the natural