Management Board Report on the activity of the JSW S.A. for 2012
3.9. Financial instruments
Information on financial instruments with respect to eliminating the price changes risk, credit risk, risk of significant cash flow disruptions and risk of loss of financial liquidity
Credit risk associated with the reliability of customers is mitigated by insuring part of trade receivables in insurance companies, collateralizing liabilities with blank promissory notes and providing guarantees granted by entities with an established market position. In addition, in justified cases the Company executes the sale after the counterparty makes a prepayment.
In order to minimize the risk associated with investing its financial resources, the Company reduced the number of financial institutions with which it cooperates solely to banks with an established market position. Furthermore, the Company diversifies its investment exposure in accordance with the concentration limits set for the individual banks.
As part of its foreign exchange risk management, in 2012 the Company used foreign exchange forward contracts. The purpose of those transactions was to secure the Company from the FX risk emerging in the course of commercial activity.
The Company monitors the risks associated with cash flow disruptions and risk of loss of liquidity on an ongoing basis. In order to minimize those risks, the Company maintains funds at a safe level and keeps a renewable credit facility in the form of a current account overdraft.
Financial risk management objectives and methods
JSW S.A. adopted a foreign exchange risk management policy accepted by the Management Board and the Supervisory Board which defines, among others, the objectives and principles for managing foreign exchange risk. The purpose of the foreign exchange risk management policy is, among others, to define the rules for foreign exchange risk management, in particular the rules for identification, quantification, monitoring and reporting foreign exchange risk which in turn should lead to limiting the adverse effect of foreign exchange risk factors on cash flows and the Company’s economic result. Since 1 January 2013, JSW S.A.’s foreign exchange risk management policy has been replaced with the JSW Capital Group’s foreign exchange risk management policy aimed at centralizing the foreign exchange risk management process in JSW S.A.
In JSW S.A., derivatives are carried at fair value. For record-keeping purposes, the Company uses bank valuations.
The Company does not apply hedge accounting.
In 2012, JSW S.A. implemented a policy for investing surplus cash. The policy ensures a more efficient execution of tasks related to investing surplus cash while providing the safety of repayment of invested funds and accrued interest, maximizing profitability and enabling effective management of banking relationships.
The policy also specifies the rules for managing JSW S.A.’s surplus cash, sets out the principles for investing surplus cash, including in particular the principles of identification, quantification, monitoring and allocation of responsibilities to enable adequate control over treasury activities, and defines acceptable tools for the investment of funds.
