Credit risk

 

The company does not face a significant credit concentration risk. Credit risk or the risk that the transaction party will not be able to recover amount receivable, is controlled by the application of credit terms and monitoring procedures.

The company does not guarantee obligations of other parties. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, if any, in the balance sheet. Consequently, the company considers that its maximum exposure is reflected by the amount of bonds and trade receivables, net of allowance for doubtful accounts recognized at the balance sheet date.

Due to the specific activity of the company there is no requirement for collateral.

Maximum exposure to credit risk amounts to 101 302 thousand LTL and 296 286 thousand LTL as of 31 December 2008 and 2007, respectively.

 

Interest rate risk

 

The Company’s income and operating cash flows are substantially independent of changes in market interest rates. The company has no significant interest-bearing assets.

The major part of the company’s borrowings is with variable rates, related to EURIBOR and LIBOR, which creates an interest rate risk. There are no financial instruments designated to manage its exposure to fluctuation in interest rates outstanding as of 31 December 2008 and 2007.

 

Foreign Exchange risk

 

All monetary assets and liabilities of the company are denominated in litas or euro, and the exchange rate of the latter is fixed in respect to litas; therefore, the company practically is not exposed to the foreign exchange rate risk.

 

Liquidity risk

 

The company’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its commitments at a given date in accordance with its strategic plans. The Company’s liquidity (total current assets / total current liabilities) and quick ratios ((total current assets - inventories) / total current liabilities) as of 31 December 2008 were 0.50 and 0.46, respectively (1.52 ir 1.48 as of 31 December 2007, respectively).

Current liabilities of the company exceed its current assets, because the company started to apply longer period of repayment for transactions with suppliers and contractors. However according to the management of the company and analysis of future cash flows the company does not face shortage of cash flow operations. Moreover, the company has unused overdraft funds as of 31 December 2008 and is able to use them when needed.

 

Capital management

 

The primary objectives of the company’s capital management are to ensure that the company complies with externally imposed capital requirements. Capital includes equity attributable to equity holders.

The Company manages its capital structure and makes adjustments to it in the light of changes in economics conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December 2008 and 31 December 2007.

The company is obliged to keep its equity up to 50 % of its share capital, as imposed by the Law on companies of Republic of Lithuania.

Moreover the company has externally imposed capital requirements from the banks. They require that equity/assets ratio is not less than 30 %. The management monitors that the company is in line with the requirement. No other capital management tools are used.