The purpose of Efore’s risk management system is to identify the strategic, operational and financial risks faced by the company and any conventional risks of loss. The risks that Efore takes in its operations are risks that are encountered in pursuit of the company’s strategy and goals. Risk management seeks to control these risks in a proactive and comprehensive manner. The measures taken can include risk avoidance, risk reduction, and risk transfer by insurance or agreement.
Management of business risks
In accordance with Efore’s operating principles, risk management forms an integral part of the company’s business processes in all its operational units. Efore Group and its operational units assess the risks of their own operations, prepare risk management plans, and report risks in accordance with the organizational structure.
Efore’s operational units have long-established training and development programs for reducing occupational accidents and improving overall safety levels. Environmental management systems based on the ISO 14001:2004 standard and quality management tools based on ISO 9001/2000 are applied in the Group’s different business locations and form the basis for the management of environmental risks.
There are separate guidelines for data and corporate security. Risk management in procurement is based on harmonized purchasing guidelines, contract clauses, and advanced data systems.
Risk of loss
Efore aims to prevent losses by observing the highest standards in its operations and taking proactive risk management measures. Risks that Efore cannot manage itself are insured. The aim is to have appropriate insurance cover for all risks of loss, such as those concerning assets, business interruption, and operational and product liability.
Management of financing risks
The principles and aims of the Group's management of financing risks is determined in the financing risk policy, which, if necessary is updated and confirmed by the Board of Directors. The management of financing risks aims at avoiding risks and cost-effective arrangements for protecting the Group from factors that may affect its performance and cash flow.
Financing risks are managed through exchange-rate and interest-rate hedging using only financial instruments with a market value and risk profile that can be reliably monitored.
Exchange-rate risk
Exchange-rate risks refer to risks caused by changes in exchange rates that can affect business performance or Group solvency.
Most of the Group's sales are denominated in euros, the Renminbi and the US dollar. The operating expenses are generated in euros, the US dollar, Estonian kroon and the Renminbi.
The policy of the Group is to hedge the main foreign currency surpluses and deficits of commercial value and fixed purchase and sales contracts. Hedging is carried out with currency derivatives, such as forward currency contracts, currency options and foreign currency loans. Most currency derivatives have a duration of less than one year.
In the financial statements the equity capital of foreign subsidiaries is translated at the European Central Bank's average rate on the balance sheet date and exchange rate differences are shown in the consolidated financial statements as translation adjustments. The subsidiaries' equity capital has not been hedged.
Interest-rate risk
Interest -rate risks are caused by interest-rate fluctuations affecting the loan portfolio and cash reserves, and also by whether the interest-bearing liabilities are fixed-interest or floating-rate. Interest-rate risks are managed by making the right decisions on loan-interest periods and by using different types of interest-rate derivative instruments.
Liquidity risk
According to the financing policy, the liquidity and adequate financing of the Group and its efficient cash management are the responsibility of the parent company. The liquidity risk is controlled by a balanced maturity distribution of the loans, adequate cash assets and credit limits.
Credit and other counter-party risks
Management of credit risks is primarily the responsibility of each business unit. Credit risk management accords with the Group's credit policy and the aim is to obtain sufficient security if the customer's credit-worthiness so requires. Material items of trade receivables are evaluated on a counter-party basis in order to identify possible impairment.
The credit risks related to the investment of liquid assets and derivate contracts are minimized by setting credit limits for the counter-parties and by concluding agreements only with leading domestic and foreign banks and financial institutions.
