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31. FINANCIAL RISK MANAGEMENT
(continued)
(d) Objectives of financial risk management
The Group’s treasury is managed by finance departments of subsidiaries and the Holding’s finance department, which is responsible for the control and coordination and the Group’s
finance functions are responsible for determining, assessing and managing the financial risks that the Group companies are exposed to using a proactive approach. This responsibility
includes maintaining a systematical access to international and local markets as well as monitoring and managing the Group’s risk exposure using the in-house reports which analyze
the level and extent of risks. Such risks consist of market risk (including currency risk, interest rate risk and price risk), cash flow risk, maturity risk and liquidity risk.
Risks that are attributable to the Group companies are managed by using the Value-at Risk (VaR) method and policies that are approved by the Board of Directors of each company.
Such policies prescribe the written procedures on the currency risk, interest risk and the use of derivative or non-derivative financial instruments and investments in excess of liquidity.
Compliance with the policies and risk limits are monitored by the Holding’s Finance Function on a daily basis. Idle liquidity is used to utilize alternative earnings via financial instruments
within the limits specified by the BOD.
When appropriate, the Group uses forward agreements as derivative financial instruments to minimize and hedge its risks. The Group has no financial instruments (including derivative
financial instruments) used for speculative purposes.
In order to minimize risk exposure, Borusan Holding Finance Department reports to Group’s Management on a monthly basis, and reports to the Board of Directors of the Holding on a
quarterly basis.
(*) VaR represents the amount of possible loss in one day, with a confidence level of 99%, considering the market volatility in foreign currency exchange rates, capital markets and
interest rates.
(e) Market risk
At the subsidiary level, the Group uses VaR analyses, which is the estimation of maximum loss within a given confidence level (99% probability) over a given period of time.
Risk management is assessed based on the functional currency of each company. The overall Group monitoring is performed in USD which is the functional currency of the Group. Risk
reports are reviewed on a daily, weekly and monthly basis in order to perform a proactive and efficient management.
(f) Foreign currency and interest risk management
The Group is exposed to foreign currency risk arising from a limited level of TL based trade receivables, tax and statutory liability payments caused by the operations of the Group
companies and foreign currency positions held to benefit from higher yields within the limits determined by the BOD of Holding. The Group’s Treasury Management manages and
controls such risk by offsetting the foreign currency assets and liabilities within the Group as well as using forward transactions and options. Fixed/variable costs of current loans are
managed using derivative instruments within the VaR limits by monitoring the global market interest movements, for hedging purposes.
According to VaR analysis performed by Group Management; the Group is primarily exposed to TL and EUR foreign currency risks. As a result of open position follow-up,
as of 31 December 2014, the Group has short position in TL for a USD equivalent amount of USD 21,001,071 and long position in EUR for a USD equivalent amount of USD
154,159,917 (31 December 2013: the Group has long position in TL for a USD equivalent amount of USD 4,490,133 and long position in EUR for a USD equivalent amount of of
USD 98,821,858).
If volatility in capital markets, interest rates and foreign exchange rates is increased by 10% against as of 31 December 2014 keeping all other variables constant, value-at risk amounting
to USD 1,446,470 (2013: USD 4,228,535) as of 31 December 2014 would have been higher by USD 1,587,976 (2013: USD 2,519,916).
BORUSAN HOLDING A.Ş. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014
(Currency - US Dollars (“USD”) unless otherwise indicated)