Risks of financial nature
Level of risk
-
low
-
medium
-
high
Change in the level of risk compared to 2016
-
decrease
-
unchanged
-
increase
-
Foreign exchange risk related to eur/pln and usd/pln exchange rate fluctuations
- high
- unchanged
The Group is exposed to significant foreign exchange risk due to its foreign currency exposure which may affect the amounts of future cash flows and the financial result. Foreign exchange risk in the Group originates from the sale of its products: sales denominated in EUR and USD and sales indexed to EUR and USD. In connection with the signed Bond Issue Program of July 2014, as amended, the Parent Company also issued bonds denominated in USD. This curtails the FX volatility risk resulting from selling products in a natural way.
The Group has been actively managing its FX risk. The overriding objective of the Group’s policy is to mitigate the exchange risk arising from its exposure to foreign currencies. The Group has been measuring its FX risk on an ongoing basis and takes actions to mitigate the effect it has on its financial standing. FX risk is managed in the Group in accordance with the Foreign Exchange Risk Management Policy at the JSW Group. In the Parent Company, there is a Foreign Exchange Risk Committee at the JSW Group, responsible for making key FX risk management decisions, in particular for hedging contracted and planned cash flows. In an attempt to eliminate FX risk, in 2017, the Parent Company executed FX forward transactions (external), in accordance with the hedge ratios adopted by the Management Board and the Foreign Exchange Risk Committee at the JSW Group. JSW also executed hedging transactions with its subsidiaries (internal). The maturity of the transactions did not exceed 12 months. The Parent Company also makes minor purchases of materials, services or investment assets in foreign currencies. This naturally mitigates some foreign exchange risk resulting from product sales transactions. The Group employs cash flow hedge accounting. Derivative transactions to hedge the denominated exposure with maturities exceeding six months are designated for hedge accounting.
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Interest rate risk
- medium
- unchanged
The Group’s exposure to interest rate risk concerns primarily potential changes in cash flows caused by shifts in market interest rates. The Group finances its operating and investing activities also with external funds bearing interest at floating interest rates and invests free cash in financial assets which also in most cases bear interest at floating interest rates. In connection with the current debt level, the Group is mostly exposed to the risk of changes in interest rates in respect to its liabilities under debt securities issued; to a lesser extent the Group is exposed to changes in interest rates in respect to deposits, cash and financial lease liabilities and loans.
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Liquidity and working capital management risk
- high
- unchanged
The current market conditions enable generation of positive cash flows, resulting in a high level of available cash. Within the framework of its strategic activities, the Group intends to maintain the Stabilization Fund, the role of which will be to provide a safety cushion in times of economic downturn when it will be necessary to incur expenditures not fully covered by cash inflows. The Group also intends to maintain the proper financing structure by keeping an appropriate level of long-term financing sources. The Group’s process of liquidity risk management calls for effective monitoring and reporting of the liquidity position, among others, to take preventive measures in the event of a threat to liquidity and maintaining an appropriate (minimum) level of cash available for service of current payments.
Additionally, in order to achieve more effective management of current liquidity, the JSW Group has in place a cash management system named Physical Cash Pooling (PCP). As part of the PCP service, the Parent Company acts as an Agent (coordinator), i.e. it represents the Group in its relations with the bank, coordinates the conditions for providing the services to Group companies. At the same time, JSW also acts as Member of the PCP system and has access to additional, short-term sources of funding for its day-to-day business.