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Risk Report

In the past fiscal year we continuously optimized our risk management system. New Group standards helped increase transparency, further enhancing our ability to identify and evaluate risks. From the present perspective all risks are contained and manageable. The future existence of the Company is secured.

The risk policy at ThyssenKrupp is based on our corporate strategy. It is directed at safeguarding the existence of the Company and sustainably increasing its value. To achieve success in business, opportunities must be recognized and associated risks identified and evaluated. We make optimum use of opportunities and consciously take and actively manage business risks insofar as they are expected to deliver an appropriate increase in value.

Risks that lie outside our core processes and capabilities are transferred where required to other risk carriers or reduced by appropriate risk containment measures. Beyond this we avoid risks wherever possible. Overall the Group can cover in full any risks taken.

ThyssenKrupp has documented the framework conditions for orderly and forward-looking risk management in its revised Group Policy Statement on Risk Management. All employees are required to be aware and accountable when dealing with risks and opportunities in their sphere of competence. Responsibility for identification and management of risks along the value chain lies with the operating managers in the decentralized organizational units.

The risk policy principles include a code of conduct applicable throughout the Group. For example, conduct towards suppliers, customers and other business partners must be fair and responsible. The Group’s compliance standards must be observed and speculative transactions are inadmissible. We carry out regular control measures to check whether these principles are being observed. In addition, numerous compliance and risk management training programs are organized and repeated to communicate the importance of these principles to all employees.

Risk management system further optimized in the Group

In the past fiscal year we extensively optimized our risk management processes. As well as the risk policy principles, the updated Group Policy Statement on Risk Management contains the key standards for the processes and various reporting elements of the risk management system. It sets out binding requirements for the early identification, reporting, evaluation, control and monitoring of risks. The Group reporting system focuses on the material risks explicitly identified in the risk inventory process. These risks are collated by the Group risk management unit, which was assigned to Corporate Center Controlling effective October 01, 2009, evaluated by a newly established Risk Committee and then communicated in a systematic and transparent report to the Group Executive Board and the Supervisory Board Audit Committee.

Risk management at ThyssenKrupp
Risk management at ThyssenKrupp

In a well-established process supported by a Groupwide web-based reporting tool, the Group companies report on the status of their risk situation using risk maps with tiered threshold values. The risks are evaluated and classified according to probability of occurrence and loss amounts. For each risk, risk management measures are reported and monitored as part of an action control system. The early warning indicators used to assess risks are regularly updated and discussed with the responsible officers.

Risk management is an important core business function at ThyssenKrupp. It is integrally linked to the planning and reporting processes used in controlling and is therefore a significant component of our value-based management system. The risk inventory process is supplemented by a monthly analysis of operating opportunities and risks and a material risk update, which is also discussed promptly in the regular Group Executive Board meetings.

The risk management system introduced by the Executive Board of ThyssenKrupp AG for the entire Group has proven itself to be efficient. Alongside the standard processes, the system ensures that ad hoc risks and losses incurred are communicated directly outside the normal reporting channels.

In the past fiscal year internal audits were again conducted worldwide to check compliance with the rules of the risk management system at the Group companies. The findings from these internal audits are used to further improve the early identification and management of risks. In addition, we continuously optimize the tools and methods for registering and managing risks so as to reduce the number of manual activities in the risk management process and enhance the quality of the information generated.

Key features of the internal control and risk management system
with regard to the Group accounting process

We define the internal control system as the entire body of coordinated principles, processes and measures applied in the Company to ensure business and controlling objectives are achieved. These include in particular the security and efficiency of business management, the reliability of financial reporting, and compliance with laws and policies. These fundamental aspects of the internal control system apply in particular to the accounting process at ThyssenKrupp. The aim of the internal control system for the accounting process is to implement controls to adequately ensure that despite any risks the consolidated financial statements comply with requirements. Various integrated and independent supervision measures are in place to help achieve this aim.

The process of preparing the consolidated financial statements is based on a standard accounting policy which is regularly updated and made available to all relevant employees via an internal internet platform. A uniform consolidation tool based on standard software is used, which minimizes the risk of false statements in the Group’s financial accounting and external reporting.

The financial reporting process at ThyssenKrupp consists of explicitly defined sub-processes with clear-cut responsibilities in line with the principle of segregating functions and the dual-control principle. This reduces the risk of fraudulent conduct.

Responsibility for the preparation of the consolidated financial statements lies with Corporate Center Accounting and Financial Reporting. Binding standards with regard to content and scheduling minimize the latitude of the decentralized units in connection with the recognition, measurement and statement of assets and liabilities and therefore reduce the risk of inconsistent accounting practices in the Group.

In some cases our Group companies use the Group’s shared service centers to prepare their local financial statements. For the consolidated financial statements the data obtained are entered into the Groupwide consolidation tool. Employees involved in the accounting process undergo regular training and are supported by central contact officers.

We use custom authorization concepts and access controls to protect the financial systems used against misuse. Centralized control and monitoring of the relevant IT systems as well as regular system backups reduce the risk of data loss and system failure. Automatic controls during the consolidation process are monitored and supplemented by manual checks by experienced employees.

The effectiveness of the internal control and risk management system in the accounting processes is regularly checked by our internal auditors.

The processes, systems and controls we have installed provide sufficient guarantee that the Group accounting process is carried out in compliance with the International Financial Reporting Standards (IFRS), HGB (German GAAP) and other standards and laws of relevance to accounting and that it is reliable. Absolute certainty that no errors are made in the Group accounting process cannot be guaranteed even by our internal control system.

Utilizing opportunities and simultaneously managing risks

In compliance with the requirements of the risk policy principles, the risks we take are balanced by appropriate opportunities, which we systematically identify, evaluate, manage and control. More details can be found in our opportunities report. We make the necessary provision to cover risks from strategic decisions.

Risk transfer by central service provider

As central service provider, ThyssenKrupp Risk and Insurance Services handled the transfer of risks to insurers and concluded the necessary Group insurance policies in 2009/2010, as in previous years. Regular loss analyses are carried out to evaluate the potential risks, and the insurance cover is determined on this basis. Under property and business interruption policies, in some cases significant deductibles exist in particular for some production units in the Steel Europe and Stainless Global business areas, so that there is a risk that a claim on these policies could materially impair the Group’s assets, financial position and earnings situation. To limit the risk of insurer insolvency, we spread the risk over numerous insurers and only select insurers with a rating of at least A-.

To further develop and optimize risk prevention, binding standards are in place for all Group companies. Experts from all areas of the Group under the leadership of ThyssenKrupp Risk and Insurance Services are involved in these processes. Internal and external audits are conducted regularly to check compliance with these standards.

Central risk areas

Central responsibilities of ThyssenKrupp AG as parent company include the coordination and management of financial requirements within the Group and securing the financial independence of the Company as a whole. To this end we optimize Group financing and limit the financial risks. Risks in the individual financial risk areas are minimized through an ongoing process of monitoring and intensive controls.

Credit risk (default risk): We enter into financial instrument transactions in the financing area only with counterparties who have a very high credit standing and/or are covered by a deposit guarantee fund. To further minimize risks, transactions are concluded only within specified counterparty risk limits. Outstanding receivables and default risks in connection with supplies and services are constantly monitored by the Group companies; in some cases they are additionally insured under commercial credit policies. The credit standing of key account customers is monitored particularly closely.

Liquidity risk: To secure the solvency and financial flexibility of the Group at all times, we maintain long-term credit facilities and cash funds on the basis of a multi-year financial planning system and a liquidity planning system on a rolling monthly basis. The cash pooling system and external financings are concentrated mainly on ThyssenKrupp AG and specific financing companies. We use the cash pooling system to allocate resources to Group subsidiaries internally according to requirements.

Market risk: Various measures are used to mitigate or eliminate the risk of fluctuations in the fair values or future cash flows from non-derivative or derivative financial instruments due to market changes. These mainly include off-exchange-traded foreign currency forward contracts, interest-rate swaps, interest-rate/foreign currency derivatives and commodity forward contracts with banks and commercial partners. To hedge against commodity price risks we also use exchange-traded futures. The use of derivative financial instruments is extensively monitored, with checks being carried out on the basis of policies in the framework of regular reporting.

Currency risk: To contain the risks of our numerous payment flows in different currencies – in particular in US dollars – we have developed Groupwide policies for foreign currency management. All companies of the Group are required to hedge foreign currency positions at the time of their inception; companies based in the euro zone are required to hedge via our central clearing office. Translation risks arising from the conversion of foreign currency positions are generally not hedged.

Interest rate risk: To cover our capital requirements, we procured funds on the international money and capital markets in different currencies – predominantly in euros and US dollars – and with various maturities. The resulting financial liabilities and our financial investments are partially exposed to risks from changing interest rates. To manage these risks, regular interest rate risk analyses are prepared, the results of which are used in our risk management system.

Commodity price risk: Depending on the market situation, purchasing prices for raw materials and energy can fluctuate significantly. To counter the price rises on the procurement markets for iron ore and coking coal in connection with the switching of raw material supply contracts from annual to quarterly contracts, we have among other things adapted our sales agreements accordingly. We also use derivative financial instruments – mainly commodity forward contracts – to hedge against the risk of commodity price fluctuations, in particular for nickel and copper. Hedging via such financial instruments is subject to strict guidelines. Details of these risk areas are provided Notes to the consolidated statement of financial position.

Order risks

The handling of major orders entails risks. Technical problems and quality problems with sub-suppliers can result in cost overruns and/or schedule delays. To contain these risks we continuously improve our management instruments and deploy experienced project managers. We minimize the risk of default by selecting customers carefully, keeping in contact with them and collecting progress payments.

Sales risks

For ThyssenKrupp as a globally active Group, the international cyclical situation is a key factor influencing our opportunity and risk position. We counter market risks on an ongoing basis with a number of measures. We closely and continuously monitor the economic trend in individual countries and trade flows in order to minimize sales risks. If necessary we respond swiftly by adjusting our production and capacities.

Our international presence in different sectors makes us largely independent of regional crises. The widely differentiated product and customer structure of our business areas limits our sales risks in individual markets. To counter the risk of bad debt caused by the reduced credit rating of key account customers, we have an effective receivables management system. The sales risks are described in detail in the section headed "Specific risks for our operations".

Risks associated with business relationships with customers in countries
with trade restrictions

Due to our global organization, ThyssenKrupp has business relationships in countries subject to trade restrictions. In the past fiscal year the Federal Republic of Germany, the EU and the USA, acting on the basis of UN Resolution 1929, expanded existing trade restrictions on the Islamic Republic of Iran to include the petroleum sector, and added further individuals and a number of banks to the sanctions lists to prohibit business with them. Violations of the tightened trade restrictions are subject to severe penalties and could damage ThyssenKrupp’s reputation. We have always complied scrupulously with export control regulations and in particular trade restrictions. In addition, the Executive Board of ThyssenKrupp AG ordered a review of the business activities with Iranian customers in existence before the tighter trade restrictions came into effect to establish whether they comply with the new laws and decided in September 2010 that ThyssenKrupp will not enter into any new transactions with Iranian customers. This measure significantly reduces the risk of a potential violation of the trade restrictions in place.

Procurement risks

In the reporting year our operations faced in particular rising procurement prices on the raw material markets. To meet these challenges quickly, we intensified our negotiations with customers so as to pass on the higher prices as far as possible in our product prices.

Energy costs (electricity, natural gas) have also increased in recent years – in some cases considerably. A structured procurement policy on the electricity market and long-term natural gas contracts reduce the risks on the energy markets. In the past fiscal year we also succeeded in negotiating favorable purchasing conditions for subsequent years.

In addition, our purchasing departments are constantly searching for alternative low-cost suppliers worldwide to contain the risks of delivery failure. The geographical distribution of orders makes us independent of regional supply bottlenecks and helps us find alternative sources in the event of local supply problems. More details on our procurement management can be found in the section Group review.

Risks associated with acquisitions, disposals and restructurings

Restructurings as well as the disposal or acquisition of real estate, companies or other business activities can give rise to risks which we continuously monitor and if necessary make adequate provision in the balance sheet.

Claims can result in legal risks. In the associated legal proceedings ThyssenKrupp is represented by its own experienced corporate counsel, if necessary with the additional support of external attorneys. We minimize claims for damages under product liability law through the high quality of our products.

When contractual partners assert claims against ThyssenKrupp under plant construction, supply and service contracts, we examine the individual claims carefully and make provision where payment obligations are considered likely.

Our strict compliance program reduces the risk of antitrust violations and corruption at all levels of the Group. In the Compliance Commitment the Executive Board of ThyssenKrupp AG unequivocally states that antitrust violations and corruption are not tolerated in the Group. We monitor and regularly update our supplementary policies and publications as well as our internal compliance organization. We last reviewed our compliance organization in connection with the reorganization of the Group effective October 01, 2009 and adapted it by expanding the existing ThyssenKrupp Compliance Office to include the compliance functions of the former segment holding companies.

In addition, the legal counsel service was separated from compliance in terms of organization and staff, and within compliance the advisory function was segregated from general principles and compliance investigations. According to an appraisal commissioned by the Executive Board of ThyssenKrupp AG carried out by the law firm Hengeler Mueller in June 2010, our new compliance organization meets the statutory requirements and accurately reflects our new Group structure. Furthermore, it comprises numerous elements to prevent systematic misconduct in the areas of corruption and competition law, recognize corresponding warning signs in good time and initiate the necessary countermeasures.

In extensive training programs and an interactive compliance e-learning program, we inform our employees about compliance requirements, infringement risks and potential sanctions. In 2009/2010 more than 2,400 employees worldwide took part in classroom training sessions. Around a further 350 employees were trained in specialized areas. To supplement the compliance training program, we have introduced a Groupwide interactive e-learning program comprising courses on competition law and combating corruption, which is available in eleven languages. The second cycle of the e-learning program which started in August 2008 is aimed at refreshing the knowledge of employees who have taken part previously and for the first time training employees outside Europe. Since the launch of the second cycle, 21,000 employees worldwide have completed online training courses on competition law and around 25,000 on combating corruption.

A report on pending litigation and claims for damages can be found in Notes to the consolidated statement of financial position.

Regulatory risks

Changes to the legal framework at national or European level can result in risks to our business, increase costs and restrict our sales opportunities. Changes to competition rules in individual sections of the markets can also bring disadvantages for us. By maintaining close contact with the relevant institutions we ensure that we have the up-to-date information we need. We also endeavor to prevent changes to the legal framework from distorting competition.

For the consumption of electricity from take-off points outside the Renewable Energy Sources Act hardship clause, the surcharges will continue to increase steeply in the next few years. The planned new rules on electricity tax will also result in significant costs for us in Germany.

Based on the draft legislation known to us, we anticipate high costs for emission allowances in the third trading period of the EU Emissions Trading Scheme from 2013 to 2020. We are continuing to monitor the political debate on this closely. As an energy-intensive industrial and services group we see risks to our earnings situation if we are unable in the competitive international market to pass on to our customers all or any of the additional costs from increased auctioning.

Furthermore, we are closely following the political developments concerning the introduction of a US emissions trading system so that we can implement strategic plans in good time and respond to new challenges in the USA on the basis of our know-how and experience.

Environmental risks

Due to our production processes, we are exposed to process-related risks of air and water pollution. Intensive pollution control measures and continuous investment in environmentally friendly facilities in our production operations help minimize environmental impact and conserve resources. The large number of Group companies with certified environmental management systems at ThyssenKrupp reduces the risk of environmental damage. More details on environmental protection are provided in the section Environmental and climate protection.

Some of our real estate no longer used for operations is subject to risks from past pollution and mining subsidence. In this connection we carry out preventive measures and scheduled remediation work, for which we again recognized adequate provisions in the reporting year.

Risks associated with information security

We continually review our information technologies to ensure the secure handling of IT-supported business processes. If necessary, the systems are updated and protected even more effectively. The IT-based integration of business processes is subject to the condition that the risks involved for our Group companies and for our business partners are minimized. Internal policies are therefore in place under which all Group companies are obligated to maintain the highest possible information security. In the reporting year we again carried out extensive measures to further develop our information security management system. In addition, business processes and data centers at selected Group companies attained security certification which documents the standard achieved above all for our customers. In the new ThyssenKrupp Quarter in Essen we raised the standard of security significantly: By incorporating state-of-the-art technologies from the planning stage we were able to achieve an appropriate level of protection.

As in previous years, in the reporting year we continued the various precautionary measures established to make our IT centers and computer networks even more secure and protect them more effectively from attacks and other external interference. In particular, the IT Compliance team continued to organize training courses and information events for employees and managers to further increase information security awareness.

Together with the Group's data protection officers, our experts ensure that personal data are processed only in accordance with the rules of the German Data Protection Act. All these measures will allow us to continue to protect the Group’s business data as well as the privacy of our business associates and employees through preventive action and to respond appropriately to potential new risks.

Risks associated with pensions and healthcare obligations

The fund assets used to finance pension liabilities are exposed to capital market risks. To minimize these risks, the individual investment forms are selected and weighted on the basis of studies by independent experts. The aim is to adjust the investments to ensure that the associated pension liabilities are permanently fulfilled in respect of the current and future income from the investments. Pension obligations are subject to risks from increased life expectancies of beneficiaries and from obligations to adjust pension amounts on a regular basis. In addition, the cost of healthcare obligations in the USA and Canada may increase. Furthermore, in some countries there is a risk of significantly higher payments having to be made to finance pension plans in the future due to stricter statutory requirements. In individual cases, the premature cancellation of a pension plan may necessitate an additional allocation. More details are provided in the Notes to the consolidated statement of financial position.

Personnel risks

Committed and competent staff and managers are of central importance to the success of ThyssenKrupp. There is a risk that key personnel cannot be found to fill vacancies or that they cannot be retained. We have a number of measures in place to counter these risks and position ourselves as an attractive employer by promoting the long-term retention of employees in the Group and offering executives an ongoing management development program, career prospects and attractive incentives. We are further intensifying the targeted mentoring of our employees to promote identification with the Company at all levels.

Our proven training system is being continued. We inform interested young people about career opportunities at ThyssenKrupp from an early age so that we can secure the young talent we need for our workforces. We also continue our intensive cooperation with key universities to establish contact with talented students early on. More information on these matters is provided in the section entitled Employees.

General economic risks

The global economic upswing will continue in 2011, but the discontinuation of numerous stimulus programs and the need to consolidate public-sector budgets could weaken economic growth.

More information on potential risks from the cyclical situation in Germany, Europe and other trading regions and sectors of importance to ThyssenKrupp is provided in the section Subsequent events, opportunities and outlook.

Specific risks for our operations

The Steel Europe business area sees fundamental risks on the sales and procurement markets as well as risks from exchange rate fluctuations and emissions trading. If the economic situation deteriorates, the already existing risk of customer insolvencies will increase. Growth in demand and capacity utilization will increase the risk of production losses. The capacity expansions to process additional slabs from the Steel Americas business area’s Brazilian plant may lead to market risks on the sales and procurement markets.

To contain the risks from cyclical demand fluctuations, Steel Europe optimizes its costs in all areas, adjusts production promptly and concentrates on high-end market segments subject to the lowest possible demand cyclicality. To mitigate the increasing risk of customer insolvencies, we monitor the situation intensely, use all available commercial credit insurance facilities, and adjust our payment conditions. Quality and supply risks are minimized through the ongoing optimization of our value chains.

The business area continues to minimize the risks caused by the high competitive intensity on the market for carbon flat steel by systematically expanding its technology capabilities to differentiate itself from competitors. The risk of rising raw material and energy prices is mitigated by using alternative procurement sources and structured energy procurement strategies and by passing on price increases to our customers.

A business and technical risk controlling system for property insurance is an integral component of Steel Europe's risk management process. Additional investment and maintenance budgets are available to further optimize fire prevention. The risks of other business interruptions are reduced by ongoing preventive maintenance, modernization and investment. In the event of business interruptions, business continuity plans are in place which specify measures for remedying damages.

Steel Europe has minimized the volume and price risks for emission allowances in the second trading period from 2008 to 2012 through a Groupwide emissions trading strategy. A reliable assessment of the volume and price risks for the trading period 2013 to 2020 will only be possible after the requirements are adopted by the European Commission in the 1st quarter 2011. However, significantly fewer certificates are expected to be allocated free of charge, which will create shortages and increase prices throughout the EU.

Steel Americas: Efficient claims management

The new integrated iron and steel mill of ThyssenKrupp CSA Siderúrgica do Atlântico in Rio de Janeiro and the processing plant under construction in Calvert, Alabama/USA remain at risk of further implementation problems such as delays or unforeseen cost increases for completing the projects and commissioning the plant units. Thanks to intensive controls and tighter risk management, we are able to identify and evaluate all risks immediately and initiate countermeasures. Our efficient claims management system ensures that all claims and obligations of our contractual partners are properly handled and managed. ThyssenKrupp is involved in legal, arbitrational and out-of-court disputes in connection with the construction of the melt shop and coke plant in Brazil which could lead to compensation payments.

The operating risks which may occur in connection with the startup of the plant units are minimized by tailored and coordinated ramp-up periods, the careful selection and training of new employees, and the targeted use of know-how from the production operations of the Steel Europe business area. To contain potential sales risks, we began work on establishing and expanding a customer base from an early stage. Furthermore, the ramp-up of the two major projects is being staggered in line with the economic situation. The procurement risk for iron ore is reduced through long-term contracts and our close relationship with our partner Vale.

Extensive measures to counter market risks at Stainless Global

In addition to the usual cyclical risks, our stainless operations – which are combined in the Stainless Global business area – face risks associated with existing and growing overcapacities at stainless producers in Asia.

To counter these risks we are making every effort to extend our value chain towards the higher-margin end-customer business. In addition, we are intensifying our customer relationships, expanding our custom services and further improving our quality and delivery performance. These measures are supported by newly developed applications for stainless steels and nickel alloys, innovative products made from these materials and modern, cost-saving process technologies.

The extensive program of measures initiated in the stainless plants to avert risks from future economic crises has already been largely implemented. It includes production cutbacks, administrative cost savings and further cost-reduction and efficiency-enhancement measures in all areas.

The construction of the stainless steel plant in Alabama/USA is proceeding in line with the revised schedule. Intensive project controls and detailed risk evaluations ensure that all risks are identified and communicated.

The availability and price risks in connection with raw materials, in particular nickel, chromium and alloyed scrap, are minimized through contracts and hedging mechanisms.

Global presence reduces cyclical risks at Materials Services

The Materials Services business area counters the risks associated with providing materials services for customers throughout the world with a wide range of measures. Inventories are optimized by systematic improvements to net working capital management. Consistent cost-reduction measures help increase efficiency and cost-effectiveness. These measures are supported by continuously improved logistics and efficient management tools.

Cyclical risks are countered by our worldwide presence, broad customer base and high degree of diversification. The resultant wide spread of risks also applies to bad debt risks, which are additionally limited by the use of hedging instruments.

Stable risk situation at Elevator Technology

The risk structure of the Elevator Technology business area is mainly determined by two factors: the different business activities and the different regions in which the business area as an international enterprise operates.

While the service business is relatively impervious to the economic cycle, the new installations business, which is closely linked to the construction sector, is more exposed to cyclical risks. In the processing of major orders we use targeted project management measures. Rising material prices are offset for the most part by efficiency improvements in production and optimized purchasing.

In regional terms, the broad international distribution of our business activities alone helps balance many of the risks because the markets in which Elevator Technology operates are in different cyclical phases. The exchange-rate risks are contained as customers generally pay promptly after receiving goods or services. Any remaining exchange-rate risks are systematically hedged.

Project deferrals a risk for Plant Technology

With investment activity subdued, prices and conditions are expected to be subject to fiercer competition on the global markets for Plant Technology – due especially to Asian but also to European suppliers. Added to this is the loss of the Iranian market. In addition, financing problems for customers could lead to project deferrals or cancellations. Attention also has to be paid to risks from the political situation, for example in the Middle East. We counter these risks in the handling of large long-term contracts and technically complex orders through increased business development activities, close project controls and professional contract management. We are developing our locations in line with market requirements and intensifying innovations in technologies of relevance to us.

Market risks in Components Technology business

The Components Technology business area is exposed to diverse general risks on account of its worldwide activities in various sectors.

There remains a risk of a renewed global or regional slump in demand. To avoid being dependent on individual markets, the business area is expanding its customer base and strengthening its international presence, particularly in Asia.

Despite the strong long-term growth prospects of the wind energy sector, there are risks of order deferrals or cancellations as a result of investment restraint. At the same time prices are subject to increasing competition on account of the existing capacities. To counter the growing price pressure, also evident in the automotive components business, the business area has introduced extensive cost-reduction and productivity-enhancement programs.

The risks on the sales markets are accompanied by a significant risk on the procurement markets due to steeply rising material prices which cannot be passed on fully or without some delay to customers. We are countering this risk by framing customer contracts accordingly.

Further risks in the business area relate to the effects of changes in exchange rates on sales and earnings. In addition, in connection with ongoing technological innovations and improvements, risks with an unforeseen impact on earnings cannot be ruled out. Added to this are potential risks from unexpected yield and quality problems and the associated warranty obligations. To avoid or limit such risks as far as possible, extensive production and quality assurance systems are in place.

Reduced risks at Marine Systems

Thanks to the extensive measures to restructure the Marine Systems business area, the remaining risk portfolio has been significantly reduced.

The risks identified in connection with the disposal of the majority stake in Hellenic Shipyards arising from the EU state aid case and the cancellation of the submarine contracts with the Greek government in the 2008/2009 fiscal year can be regarded as resolved following HSY’s departure from the consolidated group.

Further material risks included the handling of the orders for the three yachts being completed in parallel, the "Eclipse," the "Nahlin" and the "Orca". The "Nahlin" was handed over in summer 2010, the "Orca" has also been delivered, while the "Eclipse" has been made ready for delivery.

Finally there were material risks in connection with the workload situation of the yacht building capacities at Blohm + Voss Shipyards in Hamburg, which will be resolved when the agreements with Abu Dhabi MAR enter into effect. However, to a limited extent a capacity utilization risk continues to exist in the remaining marine systems business, especially if expected orders are significantly delayed. To mitigate this risk we employ a capacity management system involving skilled subcontractors and, where economically appropriate, cross-location coordination.

No threat to existence of Group

The overall risk situation at ThyssenKrupp continues to be manageable. No risks exist which threaten the existence of the Group. Our continuous risk management activities and the efficient and tailored management of all risk categories in our business operations help contain the risks in the Group.

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