36. Risk management objectives and principles

The basic financial risks which may affect the financial result of the Group include: the risk of changes in the prices of basic raw materials, interest rate risk, currency risk, credit risk, liquidity risk, and other risks, including climate risk and the risk of extraordinary events. The Management Board verifies and agrees on the principles of the management of each of the aforementioned risks and these principles are discussed below.

• Managing the risk of changes in basic raw materials prices is aimed at the elimination of short-term impact of raw materials prices fluctuation on the results, specifically when the transfer of costs to the customer is not possible.

Natural hedge strategy is applied, i.e. offering variable prices to the customers based on the current price, e.g. aluminium quoting at LME, and conclusion of futures contracts to hedge the aluminium prices;

• The interest rate risk and currency risk are managed in order to limit the impact of short-term market fluctuations on the Group results.

There is applied a strategy of diversification of short-term base rates (the Group applies 1M, 3M, and 6M rates) and acceptance of risk up to the limit of the costs of finance determined in internal procedures, and financing based on fixed interest rates. As regards currency risk, there is applied a natural hedge strategy, i.e. offering variable prices to the customers based on the current exchange rates, adjustment of the raw materials purchase currency to the currencies applied in sales, and entering into forward transactions, plus use of revolving loans in foreign currencies in order to eliminate the consequences of different dates of currency inflows and payables.

• Credit risk management is to reduce the possible financial losses on account of unpaid receivables and ensure financial liquidity.

The activities cover internal verification supported with business intelligence information, plus insurance of the receivables from customers, and use of legal security measures.

• Liquidity risk management is to ensure the possibility of timely payment of liabilities by all of the Capital Group companies.

There is applied a strategy of lenders diversification, adjustment of loans repayment periods to the planned resources of the Group, use of umbrella agreements within the Capital Group, with the possibility of changing debt sub-limits for the particular borrowers, and availing of long-term loans as regards project finance.