Risk Report

thyssenkrupp defines opportunities as events or developments that enhance our ability to exceed the Group's targets. Opportunity management encompasses all measures to support the systematic and transparent management of opportunities. Through integration of the planning and reporting processes in controlling with the strategy processes, opportunity management is an important element of the strategic and value-based management of the Group.

In the Strategic Dialogue, a structured, standardized Groupwide process at thyssenkrupp, strategies including opportunities and risks arising from relevant market and technology trends are systematically and comprehensively discussed each year in all business areas. Close integration with the Strategic Dialogue means that opportunity management too is based on a strategic medium to long term approach in some cases going far beyond the forecast period.

Following on from the Strategic Dialogue, all business areas record opportunities and risks in operational plans and monthly reports to facilitate assessment of the current earnings and liquidity situation of the individual businesses. The graphic "Opportunity and risk reporting at thyssenkrupp" in the risk report shows how these report elements are integrated in the standard reporting system.

In addition, we systematically analyze the regions in which the biggest opportunities exist for thyssenkrupp in the future. We increase and consolidate our cross-business regional activities in these regions.

The management of our opportunities is a task shared by all the Group's decision makers – from the Executive Board of thyssenkrupp AG to the business area management boards and managements of the Group companies through to regional officers and project leaders with market responsibility. Roles and responsibilities within the thyssenkrupp matrix organization are clearly defined and demarcated. This structured involvement of numerous experts in decision-making processes in the Group ensures that opportunities are reliably identified and systematically exploited.

In addition to internal improvements, the Group's Strategic Way Forward is based on the factors driving global growth now and in the future. In a volatile environment we continuously evolve our company in order to meet the global challenges of the future with competitive solutions. In making our decisions we look at where the Group can profit from the global trends of demographic change, urbanization, globalization and digitization, while taking account of constraints such as the finite nature of natural resources.

As well as optimizing the performance of each of our six business areas, we as a Group see opportunities particularly in economies of scope created by the interplay between the business areas, our regions, and the corporate functions. This applies not only to joint efforts to develop regions and customer sectors, and efficiency factors such as purchasing, the harmonization of business processes and the standardization of our IT infrastructure, but also to the integrated management of research and development. Our overriding goal and also our greatest opportunity lies in developing new products on the basis of a precise understanding of our customers' needs so as to create real added value with an attractive cost-benefit ratio for ourselves and our partners.

Advancing digitization means that previously separate value chains are increasingly converging. New products, services and business models are surfacing which can be developed best within a mix of different capabilities. thyssenkrupp with its diverse technologies has a structural advantage here. Current joint innovations such as MULTI, which is setting new standards in elevator technology, or the cross-sector project Carbon2Chem are only possible in this form thanks to the different capabilities combined within thyssenkrupp. Details of these and other innovations are contained in the section "Technology and Innovations" (page 86).

Our corporate program "impact" continues to form the framework for our Strategic Way Forward and plays a major role – together with business and theme-specific programs – in increasing the efficiency of the Group and reducing costs across all business areas and corporate functions.

Details of our corporate strategy including "impact" are contained in the section "Fundamental information about the Group" (page 35), subsection "Strategic Way Forward" (page 38).

In our development projects we are also always guided by the Group's financial scope. Unfavorable economic conditions may result in delays or compromises in implementing existing opportunities. More on this and on other risks can be found in the risk report.

Components Technology – Growing global demand for personal mobility and freight transportation is the key factor for the business area's future business performance. For us as a major engineering partner and component and module supplier to the auto industry, growth opportunities are arising in these sectors worldwide. This applies particularly to the emerging markets in Asia and the Americas. With new production sites we have positioned ourselves well in these markets. Our products can support the global trend towards efficient and environmentally friendly mobility. Challenging political targets worldwide to reduce CO2 emissions in the auto sector add to this need. In the relevant areas of weight reduction and optimization of internal combustion engines, we offer our customers in the car and truck sector state-of-the-art solutions and are working to extend our lead.

In the wind industry there is enormous growth potential in both the onshore and offshore sectors. Wind power is one of the fastest growing renewable energy forms in the world. In Europe this trend is supported by mandatory renewable energy targets set by the EU. The technological trend towards ever bigger and more efficient turbines reinforces the need for high-performance components, which we serve with our global production network.

If the relevant markets and sectors (particularly the automotive markets), our efficiency or growth programs or the ramp-up of our new plants perform better than expected, the forecasts for our key performance indicators could be moderately exceeded.

Elevator Technology – The Elevator Technology business area is one of the world's leading suppliers of people moving systems. The markets for elevators, escalators, moving walks, passenger boarding bridges and stair and platform lifts offer attractive growth and profit opportunities in times of increasing globalization and urbanization. With our broad product range, which includes standard systems, custom solutions as well as full service and modernization packages, and our local presence with around 50,000 employees at over 900 locations, the business area can open up new market and customer opportunities around the world.

Our innovative products meet the highest technological and ecological standards. In addition, implementation of the measures defined under the "impact" program will continuously improve efficiency and further increase the competitiveness of Elevator Technology.

If the global economy (particularly the construction sector) or our efficiency or growth programs perform better than expected, the forecasts for our key performance indicators could be moderately exceeded.

Industrial Solutions – Despite the deterioration of the investment climate due to the current oil price slump, growing competition and political uncertainties on the relevant markets, we see global growth opportunities for the Industrial Solutions business area in turnkey engineering and services if we continue to advance our innovative technologies. To increase competitiveness and exploit global growth opportunities in our markets even more effectively we are driving forward the regionalization of our business. We are continuously standardizing and optimizing our project management methods. In the marine sector export projects provide a continuing bright market outlook for submarines. Our high order backlog gives us a strong workload and the opportunity to further develop our core products.

If the relevant markets and sectors, the efficiency or growth programs, the investment activity of our customers or the order situation perform better than expected, the forecasts for our key performance indicators could be moderately exceeded.

Materials Services – Services are gaining further importance for Materials Services as producers and processors focus more strongly on their core business. Higher service shares generally offer Materials Services increased profitability in a volatile materials market. Opportunities for the business area therefore arise from customer orientation, specific market and sector know-how, global connections and broad expertise in project management.

Under the "impact" program Materials Services has defined extensive measures to further improve the cost situation. Operational opportunities will derive from the consistent implementation of the corresponding sales and service initiatives and the systematic digitization of business processes through to the establishment and operation of online shops for various target groups. In addition the further implementation of the restructuring and optimization programs for AST with regard to production, purchasing, organizational structure, personnel and sales will be of major importance for the business area. Significant success was already being seen in the reporting year. Additional opportunities will be created by numerous new initiatives aimed at better exploiting market potential.

If the relevant materials markets, the efficiency and restructuring programs or the sales initiatives perform better than expected, the forecasts for our key performance indicators could be moderately exceeded.

Steel Europe – The Steel Europe business area is focused on the market for premium flat carbon steel, the performance of which mainly depends on economic activity in Europe.

The efficiency measures and differentiation initiatives to secure and improve the earnings situation which have been successfully ongoing for several years are being vigorously continued.

In addition the technological capabilities of the business area are being further strengthened by targeted investment projects, which will enable us to optimize our product and customer portfolio.

Overall, even in a difficult market environment the business area is well placed to participate sustainably in the major global trends of urbanization, increasing mobility and more efficient use of scarce resources – all of which require the use of intelligent steel products.

If the efficiency or differentiation initiatives or the relevant steel market environment perform better than expected and in particular import pressure weakens, the forecasts for our key performance indicators could be moderately exceeded.

Steel Americas – We are confident that the stabilization of operational processes will continue in the coming year, further reducing operational risks in the business area. The further optimization of sales activities should result in deeper penetration of the Brazilian and international slab markets. This will create further sales opportunities and support the step-by-step ramp-up of production towards nominal capacity.

The corporate performance program "impact" with its many efficiency measures and the Group's purchasing program "synergize+" are being vigorously implemented at CSA in Brazil, so the trend towards further improving operational performance should continue in the coming year. In addition, positive effects are expected from stronger technical cooperation with the Steel Europe business area.

If the relevant steel market environment (particularly hot strip prices in the USA and global and Brazilian slab prices), the operational performance improvement or the exchange rates perform better than expected, the forecasts for our key performance indicators could be moderately exceeded.

thyssenkrupp defines risk as events or developments that reduce our ability to achieve the Group's goals. Risk management encompasses all measures involved in the systematic and transparent management of risks. With its integral link to planning and reporting processes in controlling, risk management is an important element of the value-based management of the Group and goes far beyond the early identification of risks required by law. Efficient, forward-looking risk management therefore also serves the interests of capital providers and other stakeholders.

We continuously enhance the Group's risk management system by following the internationally recognized COSO model and integrating it with the Internal Control System. We promptly implement requirements and suggestions of the Executive Board and the Supervisory Board Audit Committee.

Standardized risk management processes ensure that the Executive Board and Supervisory Board are informed promptly and in a structured way about the Group's current risk situation. However, despite comprehensive risk analysis, the occurrence of risks cannot be systematically ruled out.

In the Governance, Risk and Compliance (GRC) Policy adopted by the Executive Board in June 2015, thyssenkrupp has established basic principles for corporate governance and risk management. The Policy also describes the universally applicable risk policy principles in the Group as a framework for meeting the requirements of proper, consistent and proactive risk management. The principles are based on the thyssenkrupp Group Mission Statement and the strategic goals for the various business models; they serve as guidelines for professional and responsible risk management.

Our risk strategy is focused on securing the existence of the company and, beyond this, increasing the value of the company sustainably. Business success requires opportunities to be recognized and associated risks to be identified and evaluated. Opportunities should be optimally exploited and business risks should be entered into consciously and responsibly and managed proactively to the extent that an appropriate increase in value can be achieved. Risks threatening the Group's ability to continue as a going concern must be avoided.

The aims of risk management at thyssenkrupp are to increase risk awareness and establish a value-based risk culture at all corporate levels. Risks and opportunities are analyzed transparently and are systematically incorporated into business decisions.

thyssenkrupp has defined the following Groupwide risk management sub-processes: identify and report risks early, assess risks consistently, control risks and develop measures, and monitor risks and track implementation of measures. The efficient design of our various risk management instruments ensures that the sub-processes are integrated in a continuous risk management loop and all risk managers are involved appropriately in the process. We continually improve our methods and tools to identify, assess, control and report risks.

The organizational anchoring of Group risk management in operational and strategic controlling facilitates active and holistic risk management integrated with planning and reporting processes. Our risk management instruments are therefore focused on deviations in the key performance indicators adjusted EBIT and free cash flow before divestments (from fiscal year 2015/2016 free cash flow before M&A). The following graphic outlines our various approaches:

The opportunities and risks not included in the monthly updated projections or in the budget are part of standard business area reporting and make an important contribution to integrated business management during the year and to corporate planning. In the latter we analyze key performance indicator bands related to the current and the subsequent fiscal year.

As part of the planning process and on an ad hoc basis we also analyze macroeconomic concentration risks based on Groupwide risk scenarios taking into account centrally defined interdependencies and risk premises. The risk scenarios mainly address collapsing growth rates of major economies and other exogenous shocks and their impacts on thyssenkrupp.

An IT risk management application introduced in all Group companies for preparing an integrated risk map ensures that earnings and cash risks are recorded locally by the operational risk managers and reported through a series of approval and aggregation processes via the business area management boards to the top level of the Group. In the risk mapping process all consolidated Group entities are required to formulate risk management measures for the individual risks identified and assessed in the three-year planning period and systematically monitor their implementation. The assessment period used for the risk map therefore goes beyond the period covered by the forecast and provides complete transparency into the local risk assessments. The regular bottom-up reporting and updating of risks also ensures that risk awareness remains high throughout the Group.

Risks already recognized via balance sheet provisions are also the subject of standardized analyses and risk reporting, ensuring systematic risk management for these risks too.

Ad hoc risks are communicated immediately to the risk management officers and are also documented via the established reporting channels.

Risk management at thyssenkrupp is a combined top-down/bottom-up process. Binding system standards are formulated top-down by the Group and apply to all operating entities. Responsibility for measuring and controlling risks along the value chain lies with the functional managers in the operating entities (bottom up).

The material Group risks identified in the risk maps as well as the results of the analyses of risk scenarios and risk provisions are discussed and validated in meetings of the interdisciplinary Risk and Internal Control Committee (RICC) held once every quarter and chaired by the CFO. At the same time this forms the preparation for risk reporting to the Executive Board and Audit Committee. The RICC meetings are attended by all Group officers responsible for governance, risk and compliance. This interdisciplinary approach at committee level makes a key contribution to improving corporate governance processes in the Group.

Group risk management has the task of continuously developing the risk management system towards best practice standard and adapting it to new insights and requirements where needed. In the Group policy on risk management we have formulated binding requirements for the risk management process and defined the individual risk management tools on a standard Groupwide basis.

All operating entities are required to establish an appropriate risk management system in their area of responsibility in keeping with the binding requirements for the risk management system defined by the Group and to ensure risks are appropriately controlled. Risk managers and risk officers must be nominated for all operating entities. Furthermore all employees must take a conscious and responsible approach to risks and opportunities within their own areas of responsibility. Codes of conduct and corporate policies are a component of risk policy and must be complied with by all employees.

In line with the roles defined in the Group's matrix structure, the corporate functions and regions play a supporting and coordinating role in the risk management process. The corporate functions additionally act as risk category managers and in this role they are responsible for governance specifications in their area of responsibility.

Employees responsible for risk management receive regular training on using the individual instruments; we also use our Groupwide web-based IT risk management tool to provide targeted information and training material.

Internal Auditing uses the information from the risk maps for its risk-oriented audit planning. The internal audits structured on this basis contribute to the efficient monitoring of the risk management system and deliver insights to increase the quality of the information and further improve risk management in the Group.

Identified risks are assessed consistently according to the Group risk management rules as follows: Based on probability of occurrence and impact in the planning period we define risk classes according to the following graphic. The main individual risks in defined risk categories, which we address in the following sections, are classified in accordance with this system as high, medium or low:

Risk control is a key sub-process in risk management and an important task of the operational risk managers. The use of various risk control measures is a central component of responsible local risk management. Balance sheet provisions for risks ensure that the risks taken in the Group are covered and monitored.

Risk presentation at thyssenkrupp is by the net method, i.e. taking into account existing risk control measures that reduce gross risk. This is illustrated in the following graphic:

We prevent risks by following the risk policy principles and not entering into transactions if they infringe thyssenkrupp codes of conduct or policies. These mainly include the zero-tolerance principle in compliancerelated matters and the prohibition of speculation set out in the Group's Corporate Finance Policy.

We transfer risks in cases where the financial scale of a risk can be minimized by central measures such as insurance policies. More information is contained in the section below on risk transfer.

We reduce risks by taking appropriate targeted measures. More information on the individual initiatives can be found in the section "Operational risks of the business areas".

As central service provider thyssenkrupp Risk and Insurance Services again handled the Groupwide transfer of risks to insurers in the reporting year. The scope and design of insurance cover are determined on the basis of structured risk assessments in which insurable risks at the Group companies are identified, evaluated and reduced or eliminated through specific protection plans. According to the Group's risk-bearing ability we agree appropriate deductibles for individual classes of insurance.

Binding standards are in place for all Group companies to keep risk prevention at a sustainable and appropriately high level. These standards were developed by experts from all areas of the Group under the leadership of thyssenkrupp Risk and Insurance Services and are updated on an ongoing basis. Internal and external auditors regularly check compliance with these standards.

To limit the risk of insurer insolvency, we spread the risk and work together with numerous insurers; we also take into account the ratings given to these insurers by recognized agencies.

The internal control system comprises all the systematically defined controls and monitoring activities aimed at ensuring the security and efficiency of business management, the reliability of financial reporting, and compliance of all activities with laws and policies. The creation of an effective and efficient internal control system is important for the control of process-related risks.

As part of the harmonization of business processes at thyssenkrupp we are also continuously developing the internal control system throughout the Group using a standardized risk control matrix and a structured self-assessment process. In the reporting period we carried out a project to strengthen the internal control system aimed at securing the systematic management of process-related risks and – wherever possible – implementing automated internal controls in the business processes.

Various monitoring measures in the accounting process help ensure that implemented controls allow compliant financial reporting despite possible risks.

A standard, regularly updated accounting policy for the consolidated financial statements is available to all employees concerned via an internal internet platform. For consolidation we use a Group tool based on standard software. In this way we ensure consistent procedures and minimize the risk of misstatements in the Group's accounting and external reporting.

thyssenkrupp has clearly defined the sub-processes involved in financial reporting and assigned clear responsibilities for them. An appropriate segregation of functions and application of the dual-control principle reduce the risk of fraudulent conduct.

Corporate Function Controlling, Accounting & Risk is responsible for the preparation of the consolidated financial statements and issues binding instructions to the local units with regard to content and timing. In this way we ensure consistent accounting practices throughout the Group with minimum scope for discretion in connection with the recognition, measurement and reporting of assets and liabilities. Group-owned shared service centers support the local units in preparing local financial statements. Regular training takes place for all employees involved in the accounting process.

We perform regular central system backups on the IT systems used in the consolidation process in order to avoid data losses and system failures. The security strategy also includes system controls, manual spot checks by experienced employees, and custom authorizations and access controls.

Internal Auditing regularly checks the effectiveness of the internal control and risk management systems and is therefore integrated in the overall process.

By means of these coordinated processes, systems and controls we ensure that the Group's accounting is reliable and complies with IFRS, German GAAP (HGB) and other relevant standards and laws.

Our current economic assessment is presented in detail in the section "Macro and sector environment".

The Group will face economic risks if positive impetus is not forthcoming from the global economy and the markets of relevance for thyssenkrupp. Slower growth rates in China, a recession in Brazil, unresolved debt crises in the euro zone or exogenous shocks such as a further escalation of violence in crisis regions could have major impacts on the global economy; this would also affect thyssenkrupp. We continuously monitor the corresponding country-specific conditions. In Groupwide risk scenarios we simulate the impacts on our business models to enable us to take action and minimize risks at an early stage when necessary.

In the event of a severe exogenous shock the individual economic risks would be medium.

The central responsibilities of thyssenkrupp AG as parent company include coordinating and managing finance 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. The individual risks identified in this risk category are low.

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. 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 longterm 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 companies internally according to requirements.

thyssenkrupp AG has entered into agreements with banks which require that the ratio of net financial debt to equity (gearing) in the consolidated financial statements must not exceed 150% at the closing date (September 30). At September 30, 2015 the gearing ratio was 103.2%, 11.7 percentage points lower than at September 30, 2014. The main reasons for the improvement in gearing versus September 30, 2014 were a reduction in net financial debt thanks to our positive free cash flow, and an increase in equity from positive net income.

At September 30, 2015 the Group's available liquidity amounted to €8.3 billion, consisting of €4.5 billion cash and cash equivalents and €3.8 billion undrawn committed credit lines. The available liquidity offers enough scope to cover debt maturities. The gross financial debt repayable in fiscal year 2015/2016 amounts to €1.6 billion.

Market risk – Various measures are used to mitigate or eliminate the risk of fluctuations in the fair values or future cash flows from financial instruments due to market changes. These mainly include off-exchange traded foreign currency forward contracts, interest rate swaps, interest-rate/foreign currency swaps 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 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 have procured funds on the international money and capital markets in different currencies 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 feed into our risk management system.

Active portfolio management is one of the key pillars of our Strategic Way Forward. The disposal and acquisition of businesses as well as restructurings within our existing businesses are associated with risks. The risks identified in this category, which we classify in each case as low, are monitored continuously and provisions are recognized where required.

The disposal of the VDM group in the reporting year reduced the share of volatile materials businesses and therefore supported thyssenkrupp's positioning as a diversified industrial group. With the transaction we also achieved a mid-three-digit million euro positive effect on our net financial debt and pension obligations.

To manufacture our high-quality products, we procure raw materials and other feedstocks as well as energy and freight capacities. Depending on market situation, procurement prices can vary considerably and impact on our cost structures. Also, suppliers may be lost, which might in turn jeopardize our production and the fulfilment of contractual obligations towards our customers. The individual risks identified in this category are low. We counteract these risks where possible through margin-securing measures and alternative procurement sources to secure our competitiveness.

To hedge against raw material price swings, we also use derivative financial instruments, mainly commodity forward transactions. The use of such instruments is subject to strict rules. Details of these risk areas are provided in Note 22.

Risks related to rising energy prices are countered by structured energy procurement. We operate sustainably and are working across the Group to save energy and recycle waste. Further information on procurement risks can be found in the section "Operational risks of the business areas".

In the event of unfavorable constellations and developments, our plants can be exposed to the risk of business interruptions and property damage. In addition to the cost of repairing damage, there is above all the risk that a business interruption might result in production losses and thus jeopardize the fulfilment of our contractual obligations towards our customers. We counter these risks through regular preventive maintenance and through modernization and investment in our machinery and production facilities. In close consultation with our central service provider thyssenkrupp Risk and Insurance Services we take out appropriate insurance and so transfer risks to external service providers. The remaining financial risks in this category are classified as medium.

In our industrial plants there are process-related risks that can lead to air and water pollution. Furthermore, some of the Group's real estate no longer used for operations is subject to risks from past pollution and mining subsidence. To minimize risks thyssenkrupp invests continuously and sustainably in environmental protection and scheduled remediation and maintains a close dialogue with authorities, local communities and political representatives. We recognize adequate provisions for past pollution.

Further details on production risks can be found in the section "Operational risks of the business areas".

The risks described in the section "Macroeconomic risks" may diminish our market prospects and therefore lead to sales risks. In the event of sustained developments, a market-oriented adjustment or relocation of capacities is one conceivable measure to control risk.

We counter sales risks resulting from dependence on individual markets and industries by focusing systematically on the markets of the future. As a diversified industrial group with leading engineering expertise, thyssenkrupp operates globally, maintains good, long-term customer relationships, and pursues active strategic market and customer development. Our high degree of diversification with multi-layered product and customer structures helps ensure that thyssenkrupp remains largely independent of regional crises on sales markets.

We do not currently expect the VW exhaust gas crisis to have any significant negative impact on sales of our automotive components or materials; however price pressure is likely to increase as a result of the cost-reduction programs already announced, and as a result we classify the individual sales risks as medium.

Further details on sales risks and on our professional receivables management system to counter the risk of bad debt are provided in the section "Operational risks of the business areas".

The management of major contracts involving a high degree of complexity and long project lead times is a core challenge in the Industrial Solutions business area. Cost overruns and/or delays in individual project phases cannot be ruled out. Individual identified order risks are currently classified as medium. To minimize these risks we continuously improve our management instruments so that we are aware of current order status at all times and able to take necessary measures quickly if required.

Before entering into contracts we check the credit standing of our customers carefully. We deploy experienced project managers for order execution. Through transparent monitoring of order status we ensure that payments are made promptly according to order progress and payment defaults are minimized.

Due to the global nature of its business thyssenkrupp is exposed to possible risks stemming from trade restrictions such as tariffs, export restrictions, special customs regulations, embargoes, far-reaching economic sanctions against certain countries, persons, businesses and organizations, as well as other protectionist or politically motivated restraints. These restrictions can not only impede our business activities in individual national markets; violations could lead to severe penalties, sanctions, reputational damage and damage claims. We therefore take strict care to comply with customs and export control regulations and other trade restrictions. For example, in parallel with the sanctions introduced against Iran in 2010 by the EU, Germany and the USA, the Executive Board decided to end all business relations with Iran. Since then no new contracts with Iranian customers or suppliers or with Iran as the country of destination have been entered into. We are closely monitoring the ongoing negotiations on Iran sanctions relief and if appropriate will change our position accordingly.

Risks can arise in connection with pending or imminent lawsuits or regulatory or administrative court proceedings brought against thyssenkrupp (litigation risks). The thyssenkrupp Group uses a software tool with which litigation risks are systematically identified, categorized, evaluated and reported under the internal risk management system to the Executive Board and the Audit Committee on a quarterly basis. We carefully examine claims asserted by third parties for merit. Legal disputes in and out of court are supported by in-house counsel and where necessary external counsel.

Based on the applicable risk standards, current estimates indicate that there are no litigation risks which could individually or cumulatively be classified as high. Cumulative litigation risks are combined risks from lawsuits brought by numerous claimants and from regulatory proceedings against thyssenkrupp which relate to the same matter and can be classified as a single litigation risk. Information on further litigation risks for which we have recognized provisions or which are classified as contingent liabilities is provided in the Notes (Notes 16 and 21).

We operate a strict compliance program focused on reducing the risk of antitrust and corruption violations. This focus is justified due to the enormous potential for damage with these offenses – both financial and in terms of reputation. For this reason compliance risks in general are classified as high.

On December 11, 2014 the German Federal Cartel Office closed its anti-trust investigation in the "auto steel" sector due to a lack of probable cause. The proceedings were initiated at the end of February 2013 with searches of three companies in the steel sector, including thyssenkrupp. The authority was investigating the suspicion of price fixing in the delivery of certain steel products to the German automotive industry in a period dating back to 1998. In its press release on the closure of the investigation, the Federal Cartel Office emphasized thyssenkrupp's cooperation in the proceedings.

In 2013 the public prosecutor's office in Bremen launched an investigation into (former) employees of Atlas Elektronik GmbH, among others, on suspicion of bribery of foreign officials and tax evasion in connection with commission payments to an agent in Greek naval projects. Atlas is a joint company of thyssenkrupp and Airbus. In this connection, the public prosecutor's office has now opened administrative proceedings against Atlas as a legal person which could potentially serve as the basis for a company fine. The Greek state prosecutors have also started investigations into Atlas Elektronik and natural persons involved in this case. Under these criminal proceedings, in February 2015 the Greek state filed/announced civil claims for compensation in the mid two-digit million euro range against Atlas as a company. Atlas is cooperating fully with the authorities and has initiated an internal investigation to clarify the matter in consultation with the Bremen public prosecutor's office. The ongoing official proceedings and the internal investigation are being closely monitored by the owners.

New laws and other changes in the legal framework at national and international level could entail risks for our business activities if they lead to higher costs or other disadvantages for thyssenkrupp compared with our competitors directly or in respect of our value chain. As an energy-intensive industrial and services group, we face earnings risks on the global markets if we are not able to pass on the additional costs to our customers, or only to a limited extent.

thyssenkrupp supports effective climate protection efforts and a sustainable energy transition in which climate protection, security of supply, and competitiveness are equal priorities. We support the relevant discussion processes on regulatory efforts through close working contacts with the relevant institutions and also work through industry associations to reduce possible risks such as further rising energy costs.

Risks could occur for example in Germany as a result of the evaluation of the treatment of in-house electricity announced for 2017. Regarding the EU emissions trading system there is a significant long-term risk of higher costs for thyssenkrupp if CO₂ allowance costs rise sharply in the fourth trading period (from 2021), as politically desired in part. The EU Commission's current proposal suggests the burdens will increase significantly, though at present it is not possible to estimate what final form the regulation will take.

At global level, international climate policy and the process to implement at national level the expected results of the International Climate Conference in December 2015 could give rise to risks for our businesses in the regions affected. Corresponding activities to minimize risks are coordinated at Group level and strengthened through global networks and the close involvement of thyssenkrupp's regional headquarters.

Further regulatory risks may ensue from changes to the tax framework over time. For example in Brazil tax benefits granted at state level, from which thyssenkrupp CSA also profits, are currently being examined by the constitutional court. Should the court cases result in the benefits being removed and/or reduced, high risks in the form of substantial back taxes plus additional costs in Brazil cannot be excluded.

Our IT-based business processes are exposed to various risks associated with information security, which we classify as medium. Human error, organizational or technical processes and/or security vulnerabilities in information processing can create risks that threaten the confidentiality, availability and integrity of information. For this reason we continually review our processes and technologies. Systems are updated and processes modified immediately as necessary. The IT-based integration of our business processes is subject to the condition that the risks involved for our Group companies and business partners are continuously minimized.

In the past fiscal year we again carried out measures to further improve our information security management and security technologies. A group of IT security experts which is continuously being increased supports the Group with the early identification of risks.

To secure the sustainability of implemented and planned measures the Group companies are required to regularly demonstrate the maturity levels of their established information security management systems (ISMS). Sensitizing our employees to the risks involved in handling business-related information is a very important issue to us. In this connection we carry out communication campaigns and secure the requisite technical support. A regular exchange of information and experiences with proactive measures to improve information security and manage risk takes place at international level.

Furthermore, business processes and data centers at selected Group companies have achieved security certification, documenting the standards achieved above all to our customers. In addition, vulnerability analyses are carried out with the support of our IT security team and external experts to verify the security of the infrastructure and if necessary increase protection.

Together with the Group's data protection officer, our experts ensure that personal data are processed 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 partners and employees, and to respond appropriately to potential new risks.

As a diversified industrial group with leading engineering expertise, thyssenkrupp strives to be successful on a sustainable basis. For this we need dedicated and highly qualified employees and managers in all business units. There is a risk of not being able to find key personnel to fill vacancies or losing competent employees; we classify the individual personnel risks as medium.

thyssenkrupp positions itself as an attractive employer and promotes the long-term retention of employees in the Group. This involves offering development programs, career prospects and attractive incentive systems. We provide targeted support for our employees, inform interested young people about career opportunities and thyssenkrupp from an early stage, and support apprentices as they start work. We cooperate with key universities and establish contact with students from an early stage to secure the young talent we need for our workforce.

The fund assets used to cover 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 align the investments so that the associated pension obligations can be permanently fulfilled in respect of the current and future income from the investments.

Pension obligations are exposed to risks from increased life expectancies of beneficiaries and from requirements to adjust pension amounts on a regular basis. In addition, payments to pension funds may increase substantially in some countries in the future due to stricter statutory requirements. In individual cases, the premature cancellation of a pension plan may necessitate an additional allocation. Overall we classify the risks associated with pension obligations as medium.

Components Technology – The Components Technology business area is a global supplier of automotive and industrial components and as such is dependent on the international economic situation and exposed to various general risks in its different areas of business.

For the core markets of Components Technology area continued growth is expected in all product segments. However this is subject to major uncertainty. Low growth rates in the emerging economies, slowing momentum in China and Brazil, and continuing high budget deficits in Western Europe and the USA could jeopardize our market prospects.

To lessen the risk of dependency on individual markets the business area is expanding its customer base and further strengthening its international presence. In addition, extensive early warning indicators have been put in place to allow a fast response to a possible economic slowdown.

In addition to the economic risks, further risks come from the consolidation process in the auto components industry and the increasing price pressure, intensified by auto manufacturers' cost reduction programs. On top of this there are price and structural risks in China.

We do not currently expect the VW exhaust gas crisis to have any significant negative impact on sales of our automotive components; however price pressure is likely to increase as a result of the cost-reduction programs already announced. There is a risk of a shift in drive system technology away from diesel systems, which could impact demand for the moderate number of diesel-specific components in our Powertrain unit at Components Technology.

Risks in the wind energy industry lie generally in dependence on national funding systems. In Germany uncertainties remain regarding grid connection and financing of further offshore projects. We are countering this risk with new technologies and innovations to access new areas of application. At the same time pressure on selling prices remains high as a result of intense competition. We are countering this price pressure with optimizations and efficiency enhancements under the corporate program "impact". On the procurement side there are risks that steeply rising raw material prices cannot be passed on in full to customers or only with delays. The business area counters these risks by framing contracts with customers accordingly.

Further general risks for the business area concern the impact of changes in exchange rates on sales and earnings, both translation and transaction effects. In addition, risks from unplanned impacts on earnings cannot be ruled out in association with ongoing technological innovations and improvements. On top of this there are potential risks from unexpected yield and quality problems and the associated warranty obligations. The business area uses extensive production and quality assurance systems to avoid or limit such risks as far as possible.

Elevator Technology – The risk structure of Elevator Technology is mainly determined by two factors: the different areas of business and the different regions in which the business area operates.

The service and modernization business is comparatively independent of the general economic situation. To prevent possible losses of maintenance units, the business area pursues corresponding customer retention strategies. In addition we continuously implement efficiency programs to counter rising personnel and procurement costs.

The new installations business is closely linked with the construction sector and is therefore exposed to greater fluctuations. However due to the longer project times in this business, downturns can be anticipated so countermeasures and capacity adjustments can be carried out at an early stage. Risks, particularly in the execution of complex major projects, are countered by the use of project management measures. Risks from rising material prices are offset by efficiency improvements in production and optimized procurement activities.

Accident risks cannot be ruled out completely during the installation, maintenance and use of the business area's products A safety-oriented corporate culture, employee selection and corresponding training programs on safe conduct on job sites (Safety First) counter the risk of employee accidents. We carefully select and train our installation and service employees to ensure maximum safety and quality of the products we install and service, providing users with best-possible protection. Elevator Technology's goal is to rule out accidents involving users as far as possible, also in part to avoid loss of reputation.

Potential risks from increasing business activities in the Asian markets, where business is more dependent on new installations and therefore on construction activity, are largely offset by our successful presence on the established markets in Europe and the Americas. Possible economic risks in the emerging nations are countered by expanding the modernization and service business and improving efficiency. Exchange rate risks resulting from the international nature of our business are reduced by a high level of local value creation and hedged using financial instruments.

Continuing global economic uncertainty carries further risk potential for Elevator Technology, mainly the risk of bad debt and project delays. As a secondary effect, competition could intensify on all markets and increase price pressure. The business area counters these risks with professional project management in association with extensive checks of customers' credit standing. Customer retention strategies, high service quality, efficiency programs and not least innovative and sustainable product solutions help contain the risk of increasing price pressure.

Industrial Solutions – A major risk factor for the business area is the uncertainty concerning the performance of the global economy, the stability of growth in the USA, and the future development of other major economies such as China, India, and Brazil. Further risks include a fall in demand for capital goods from customers in the oil and gas industries and the mining sector as a result of lower oil and raw material prices. In addition to the decline in raw material and oil prices, political developments in important sales regions (for example in the Middle East & Africa region and in Russia/Ukraine) could negatively impact the project situation in the Industrial Solutions business area, leading to project deferrals or cancellations.

Particular technological risks are associated with "first of its kind" contracts. Specific risks in the execution of major long-term contracts and technically complex orders are countered by professional and result-oriented project and claims management, intensive project monitoring, and the increased use of project management measures.

In the plant construction business increasing price and terms competition, for example from Asian suppliers, could negatively impact margin quality.

Materials Services – The global materials and service business of Materials Services is subject to cyclical swings in demand and prices on the procurement and sales sides – in some cases to a greater extent than other businesses. This has a significant impact on our net working capital. Fast delivery with minimum capital employed is a key success factor for our business model. We therefore work continually to optimize our logistics and the entire supply chain, e.g. through the further consolidation and centralized coordination of our purchasing activities as one of the market leaders in Europe.

Cost-reduction measures under the "impact" program increase efficiency and profitability. Systematic improvements to net working capital management help us effectively optimize inventories and minimize the risks of bad debt. At the same time we are intensifying our service activities for materials.

In addition we contain cyclical risks by our worldwide presence, broad customer base and high degree of diversification. This results in a significant spread of risks.

The production sites of our unit AST are exposed to a risk of business interruptions and production losses. We are countering these risks mainly through preventive maintenance, modernization and investment.

Steel Europe – Risks going forward for the Steel Europe business area include in particular risks on the sales and procurement markets, earnings and margin risks from high import pressure and global overcapacities, risks from exchange rate fluctuations and from the emissions trading system and the Renewable Energies Act. If the economy were to deteriorate, the risk of customer insolvencies would increase.

To contain the risk of cyclical demand fluctuations the business area optimizes costs in all areas, adjusts production levels in good time and focuses on less cyclical high-end market segments. The risk of customer insolvencies is minimized by intensified monitoring, using commercial credit insurance facilities and other appropriate instruments, and adjusting payment conditions. Constant optimization of supply chains reduces risks to quality and delivery performance.

We do not currently expect the VW exhaust gas crisis to have any significant negative impact on sales of our materials; however price pressure is likely to increase as a result of the cost-reduction programs already announced.

Steel Europe continues to counter intense competition on the market for flat steel products with systematic strengths in technological expertise and an even stronger focus on customers, allowing differentiation from the competition. This involves systematic investment in research and development projects aimed at developing innovative products and customer solutions and bringing them onto the market quickly. In addition quality management has been reorganized to increase the focus on product quality.

The business area has integrated a business and technical risk controlling system for property insurance into its 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 specifying measures for remedying damage.

The move towards an energy system dominated by renewables in Germany is also creating major challenges for energy-intensive industries in general and the steel sector in particular. Possible cuts to the exemptions applying to producers of in-house electricity in the forthcoming amendment of the Renewable Energies Act represent a significant threat to the company. Added to this are further cost-driving factors associated with the integration of renewable energies, such as the necessary expansion of the electricity grids and the storage of reserve capacities to provide security of supply. Regulatory requirements placed on the electricity and gas networks of our large production sites and our power plants could result in further cost impacts. The risk of rising electricity prices is being countered by increasing the supply of in-house produced electricity. In response to the risk of increasing natural gas prices, the Group is pursuing a centrally managed price hedging strategy.

We could face significant costs for emissions allowances in the third trading period of the EU emissions trading system from 2013 to 2020. However this risk is countered by the emission allowances we already hold and through hedging transactions. The models for continuing emissions trading after 2020 currently being discussed at European level contain significant risks. A potentially steep rise in the need to purchase allowances could be accompanied by increasing allowance prices, which would weigh heavily on the European steel industry in the international markets.

The risk of rising raw materials prices is countered by using alternative procurement sources, risk-reducing procurement strategies, active risk management, and/or margin-securing measures.

Steel Americas – The production-related risks at the steel mill in Brazil, which in the first half of the past fiscal year led to stoppages mainly in iron production and in the melt shop, were effectively contained through the reorganization and realignment of our maintenance activities and further process optimizations. This was reflected in a significantly improved operating performance in the second half of the year.

Risks typical to the industry include future market prices for raw materials on the procurement side (particularly iron ore and coking coal) and for steel (particularly in Brazil and the USA) on the selling side. Favorable raw materials prices in the past fiscal year were partly offset by a steep decline in steel prices and as a result also margins. This situation has now stabilized, albeit at a low level. The establishment of our own sales organization in Brazil is making good progress. We have already built some promising long-term customer relationships on the international market. However, on the local market demand remained below expectations owing to the deteriorating economic situation in Brazil; there are no signs yet of a sustained recovery.

The steep depreciation of the Brazilian real also lowered the value of input tax credits, which are denominated in real but accounted for in US dollars, but this also created exchange-rate-related cost advantages in current operating business. Short- and medium-term risks associated with fluctuations of the exchange rate of the Brazilian real against the US dollar are minimized by exchange rate hedges in accordance with the requirements of the thyssenkrupp Corporate Finance Policy.

The risk associated with electricity prices in Brazil has now been significantly reduced as a result of falling prices and an electricity price cap introduced by the authorities. In addition steam and gas production in the power plant was optimized, which ultimately stabilized and increased in-house electricity production at the steel mill and sharply reduced energy procurement costs and dependence on the electricity market.

Further risks typical to Brazil relate to the fast-changing legal situation. Above all, new rules in tax legislation call for fast and careful action. To counter such fiscal risks at an early stage the steel mill and the tax department of the regional headquarters in America cooperate closely.