Hedging Policy

Definition:

The Group is exposed to various financial risks because of its activities. These risks comprise market risk, credit risk, currency risk and liquidity risk. The Group's general risk management program is focused on the volatility of financial markets, and minimizing the impact of probable negative developments on the Group's financial performance.

Purpose:

Creating a framework where the scope, limit and liability related to the impact of rapid changes in the commodity market on our group companies and the activities of Alarko can be determined in addition to assuming foreign exchange liability, sharing this framework with the stakeholders in a transparent manner, reducing uncertainty finally, and minimizing probable damages

Scope:

Market Risk: price volatility related to main ingredients

Credit Risk: Observing credit/equity ratio

Currency Risk: The exchange rate volatility related to capital and interest

Liquidity Risk: Keeping the current ratio within acceptable limits

Methods to be Used:

No-Cost Banded Swap, Forward, Option-Based Instruments, Option Instruments with Premium Payment, Natural Methods of Hedging, Derivatives, Interest Market Surveillance and Follow-up, Indebtedness Structure Follow-up and Preparation, Structuring of Weighted Average Maturity Analyses, etc.

 

Alarko Holding's Policy on Hedging Transactions

Policy

It is of vital importance for our company to have an efficient hedging strategy in order to control potential risks and establish a sustainable growth.

The aim is to minimize the risks related to the fluctuations of coal and steel prices as regards the raw materials used by the organizations included in the Holding, interest rates, cash flow and exchange rates, as well as the counterparty risks, and thus ensure reasonable security against potential shocks.

The Finance Group Department and Investment Planning Department are responsible for managing the financial risks within the Holding. These two departments directly report to the General Manager.

Each year, the policy shall be revised with the participation of the Chairman of the Board of Directors of the Holding, Group Executive President, General Manager, Chief Financial Officer, Chief Audit Officer, Chief Financing Officer and Investment Planning Department, and the next year's roadmap shall be prepared.

In order to control potential cash movements to occur as a result of the fluctuation in the prices of coal, the essential component of our energy business, the method that is the most suitable for market conditions is used among the no-cost banded swap and option-based instruments and option instruments with premium payment, and efforts are continued to minimize the price risk.

In order to control currency risk, first natural hedging methods are used. The currency of the contracts to be signed is chosen in a manner to observe the income and expense balance as much as possible. In order to avoid currency risk, the method that is the most suitable for market conditions is used among the no-cost banded derivates based on forward and option contracts, and measures are taken against the potential fluctuations to arise in foreign exchange rates.

Our company is susceptible to financial risks caused by the changing interest rates because of the nature of its sector and operations. Within the scope of interest rate risk management, activities are regularly performed in order to monitor and analyze the interest rate market, prepare the indebtedness structure, analyze the susceptibility to changes in interest rates and weighted average maturities and follow-up the potential cost changes arising from interest rates. With a view to managing the interest risk, hedging transactions are performed by means of derivatives in order to fix the credit interest rates of a particular debt portfolio or ensure that such rates remain within a particular interest rate range for the maturity period.

As regards the sound cash flow and liquidity issue, which is addressed as part of the financial risk, 5-week and 13-week cash balances are timely prepared and reported for the own plans of our companies and undertakings as required by our efficient control mechanism, giving these companies and undertakings the chance to estimate their cash flows in advance.