Risk report
Thanks to our systematic and efficient risk management system, our risks are contained and manageable. Although there are no risks threatening the existence of the Company, we are also affected by economic developments on the world markets, in particular in the automotive, engineering and construction sectors. ThyssenKrupp is responding to the current market conditions with an extensive action program, including production cutbacks, reductions in administrative costs as well as further cost-cutting and efficiency enhancement measures in all areas of the Group.
In fiscal 2008 / 2009, the financial crisis will continue to impact the real economy and thus the business and financial situation of ThyssenKrupp.
The financial crisis is underlining the implications of financial risks. The lack of confidence in the international financial system is reflected in the continued difficulty of access to the money and capital markets and restricted lending by banks. Against this background, there is an increasing focus on financial risks such as liquidity and credit risks.
ThyssenKrupp takes account of and manages these risks. On the basis of a multi-year financial planning system and a liquidity planning system on a rolling monthly basis, we are kept updated on the financial position of the Group and manage our liquidity requirements with foresight. Accordingly, financing in fiscal 2008 / 2009 is on a secure foundation despite the difficult economic conditions.
As a result of the financial crisis and the associated distortions on the money and capital markets, the risk premiums for corporate debt financings have in part risen significantly. Against this background, ThyssenKrupp is also exposed to the risk of rising refinancing costs. For us, this mainly relates to new financings, as costs here are based on the current market conditions. On the other hand we have existing, long-term financings/credit lines based on the originally agreed conditions/risk premiums.
By contrast with the increase in risk premiums, the reductions in the central bank interest rates are having a positive impact on refinancing costs as they reduce the base rate for refinancing via the interbank interest rates, which have also fallen. This reduces the overall risks from refinancing costs (base rate plus risk premium).
Credit risks (default risks) arise from the fact that the Group is exposed to possible default by a contractual party in relation to financial instruments, e.g. financial investments. Against the background of the financial crisis, default risks are taking on greater significance and are being managed very carefully as part of ThyssenKrupp's business policy. Financial instruments used for financing are concluded only with counterparties of extremely good credit standing and within the specified risk limits.
Further financial risks such as currency, interest rate and commodity price risks are reduced by the use of derivative financial instruments. Restrictive principles regarding the choice of counterparties also apply to the conclusion of these financial instruments.
The slowdown of our core markets harbors in part significant volume and price risks and is also forcing our segments to adjust their production output. In the Steel and Stainless segments, short-time working is being introduced as a response to the decline in demand. Falling raw material prices will ease the situation in our steel operations.
Budget and deadline risks on major projects are well managed by intensive project controls. By extending the timescale of our Stainless investments in the USA, we are responding to the current slump in demand and at the same time securing short-term liquidity.
Our global presence and our balanced conglomerate structure with activities in the areas of steel, capital goods and services – combined with our good, longstanding customer relationships and our skilled and motivated employees – put us in a good position to reduce sales risks and emerge stronger from the current crisis.
At the same time we are closely following political developments in our business areas to minimize regulatory risks from tighter legislation as well as risks from EU requirements on the issuing of CO2 allowances.
Beyond this, the detailed information contained in the risk report in our 2007 / 2008 Annual Report is still valid.
We report on pending lawsuits, claims for damages and other risks in Note 07.