Risk Report

thyssenkrupp defines opportunities as events or developments that enable us to exceed the Group's forecasts and targets. Opportunity management encompasses all measures required for the systematic and transparent management of opportunities. As it is integrated with the strategy, planning and reporting processes, opportunity management is an important element of the strategic and value-based management of the Group.

In the Strategic Dialogue, a structured and standardized annual Groupwide process, all business areas identify opportunities arising from relevant market and technology trends and discuss corresponding strategies. Close integration of opportunity management with the Strategic Dialogue means that opportunity management 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 "Risks" section of this report shows how these elements are integrated in the standard reporting system.

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.

Our employees are the basis of our success. In a volatile environment we continuously evolve our company in order to meet the global challenges of the future with competitive solutions.

As a Group we see opportunities particularly in economies of scope created by the interplay between the business areas, the regions, and the corporate functions. For example we take an integrated approach to research and development by pooling our expertise in Groupwide projects and partnerships with selected research facilities and our customers. Major opportunities lie 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.

thyssenkrupp stands for efficient processes and production methods with high product quality. Many of our plants set global standards in terms of resource efficiency and environmental protection. Advancing digitization means that previously separate value chains are increasingly converging because new products, services and business models can be developed best within a mix of different capabilities. thyssenkrupp with its diverse technologies has a structural advantage here. Detailed information on current cross-cutting innovations is presented in the section "Technology and innovations".

We also see opportunities in the systematic and focused continuation of the corporate programs launched in previous years. We continue to work on maximizing the efficiency of purchasing and harmonizing our business processes and our IT infrastructure. Our corporate program "impact" remains the framework of 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.

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 "Risks" section. Details of our corporate strategy and possible opportunities in the planned joint venture of our steel business with Tata Steel are contained in the section "Fundamental information about the Group".

Components Technology - A key factor for the Components Technology business area's future business performance is the development of personal mobility and freight transportation. Demand is growing in both sectors, creating growth opportunities worldwide for us as an engineering partner and component and module supplier to the auto industry. This applies particularly to the emerging markets in Asia and the Americas, where we have positioned ourselves well with new production sites. Our products can support the global trend towards an efficient and environmentally friendly kind of mobility that also meets challenging political targets to reduce vehicle emissions. In the relevant areas of weight reduction and optimization of drive technologies, we offer our customers state-of-the-art solutions and are working to steadily extend our lead. With the further development of our chassis systems we are creating the conditions for new approaches and solutions. We want to actively shape the path towards increasingly automated and autonomous vehicles. We see growth opportunities here across all vehicle classes.

In the wind industry growth opportunities are opening up 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. We are also profiting from the repowering of older turbines. First-generation turbines are gradually being replaced by more modern and efficient units.

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

Elevator Technology - The markets for elevators, escalators, moving walks, passenger boarding bridges and stair and platform lifts offer attractive growth and profit opportunities for the Elevator Technology business area 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 more than 50,000 employees at over 900 locations, the business area can open up new market and customer opportunities around the world.

With innovative products and service solutions we strive to meet customers' highest technological and ecological requirements. With MAX, the first cloud-based maintenance solution in the sector, we are increasing the digitization and efficiency of our service business and creating additional competitive advantages.

In addition, we expect continuous improvements in the efficiency and competitiveness of Elevator Technology through implementation of the measures defined in the "impact" program.

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

Industrial Solutions - If we continue to advance our innovative technologies, global growth opportunities could open up for the Industrial Solutions business area in turnkey industrial plants and services despite the deterioration of the investment climate, increasingly fierce competition and political uncertainties on the relevant markets. To increase competitiveness and exploit the growth opportunities in our markets even more effectively, we are driving forward the regionalization of our business. At the same time we are continuously standardizing and optimizing our project management methods, working in a global engineering network to guarantee optimum capacity utilization. All initiatives in this connection are brought together in our "planets" transformation program. We have defined acceleration measures and focus themes for this program throughout the business area.

In the marine sector, orders for the German Navy and in particular submarine projects for export provide a good market outlook for the next few years. If our various campaigns for submarine programs around the world succeed, this will benefit our order backlog and workload.

If the relevant markets and sectors, the efficiency and growth programs, the investment activity of our customers or contract execution 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. Materials Services is increasingly also taking on the management of customers' supply chains. 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, a global network and broad expertise in project management.

The continuous development and implementation of tailored digital solutions - for example our B2B portals - offers many opportunities for Materials Services to be an even better and more efficient partner to our customers. Materials Services is continuously driving the digital transformation of the business area along the entire supply chain. Interconnected collaboration and interactive processes are already day-to-day routine in many areas - from logistics to warehousing, equipment utilization and purchasing to administration. In all Materials Services' offerings, the focus is on customers and their individual needs.

Under its "focusX" program, Materials Services has identified opportunities and defined extensive measures to further improve the cost and earnings situation. Key elements of this are the further structural optimization of materials warehousing and service operations in Germany, the pooling of purchasing activities and the business area-wide deployment of a project management organization for the structured, sustainable implementation of improvement opportunities.

Due to the advanced status of the optimization programs for AST, especially in production, purchasing and sales, and the turnaround in the reporting year, further opportunities are opening up in this business.

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.

In addition, the increasing digitization of the steel value chain provides opportunities for Steel Europe, both through the increasing connectedness of production and through the ability to develop new digital business models. These opportunities are to be leveraged as part of the digitization offensive in the "one steel" strategy program.

At the same time "one steel" also provides for the strengthening of Steel Europe's technological capabilities through targeted investment projects which will enable us to optimize our product and customer portfolio in accordance with the requirements of the market.

Overall therefore, even in a difficult market environment, Steel Europe 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 measures defined under "one steel" and the relevant steel market environment perform better than expected and in particular import pressure weakens, the forecasts for our key performance indicators could be exceeded.

thyssenkrupp defines risks as events or developments that reduce our ability to achieve the Group's forecasts and targets. Risk management encompasses all measures involved in the systematic and transparent management of risks. With its 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.

Our risk strategy is focused on securing the existence of the company and increasing the value of the company sustainably. Business success requires opportunities to be recognized and associated risks to be identified and evaluated. Business risks should be entered into consciously and responsibly and managed proactively. Risks threatening the Group's ability to continue as a going concern must be avoided.

In its "Governance, Risk and Compliance (GRC) Policy" thyssenkrupp has defined 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.

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 in the Group are therefore analyzed transparently and are systematically incorporated into business decisions.

We continuously enhance the Group's risk management system by following the internationally recognized COSO model and integrating it with our internal control system. In optimizing the systems, we promptly implement requirements and suggestions of the Executive Board and the Supervisory Board Audit Committee. Under our GRC Policy, our risk management system methodology is embedded in the three lines of defense model. Details can be found in the corporate governance report.

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 defined standard binding requirements for the risk management process.

The sub-processes of risk management are: first, identify and report risks early, second, assess risks consistently, third, control risks and develop measures, and fourth 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 risk management process. Our methods and tools to identify, assess, control and report risks are implemented throughout the Group and are continually improved.

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 focused on deviations in the key performance indicators "adjusted EBIT" and "free cash flow before M & A". The following graphic outlines our various approaches, which are explained briefly below:

The opportunities and risks not included in the monthly updated projections or in the budget are part of standard business area reporting. Regular discussion of opportunities and risks makes an important contribution to integrated business management during the year and to corporate planning, in which we analyze bands for the key performance indicators "adjusted EBIT" and "free cash flow before M & A" 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. These risk scenarios mainly address slumps of major economies and other exogenous shocks and their impacts on thyssenkrupp.

To record relevant event risks in a structured way in specific areas of responsibility, all Group companies worldwide use a standardized IT risk management application to prepare risk maps. This ensures that earnings and cash risks influencing our key performance indicators 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. The assessment period used for the risk map 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 control of these risks too.

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

These 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.

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 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.

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 on the key performance indicators 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:

In the risk mapping process all consolidated Group entities are required to formulate risk control measures for the individual risks identified and assessed in the three-year planning period and systematically monitor their implementation.

Risk presentation at thyssenkrupp is by the net method, i.e. taking into account existing risk control measures that reduce gross risk.

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 compliance-related 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 and for example by continuously improving a functioning internal control system. More information on the individual initiatives can be found in the sections "Internal control system in the Group accounting process" and "Operational risks of the business areas".

Risk transfer to insurers is handled centrally at thyssenkrupp AG. 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. A balanced portfolio reduces the risk of insurer insolvency.

Binding standards are in place for all Group companies to keep risk prevention at a sustainable and appropriately high level. These standards are developed by experts from all areas of the Group under the leadership of thyssenkrupp AG and are updated as required. Internal and external auditors regularly check compliance with these standards.

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. An effective and efficient internal control system is key to the successful management of risks in our business processes.

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.

Various monitoring measures and controls in the accounting process help ensure compliant financial reporting. 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. An appropriate segregation of functions and application of the dual-control principle reduce the risk of fraudulent conduct.

thyssenkrupp has clearly defined the sub-processes involved in financial reporting and assigned clear responsibilities for them. 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. All employees involved in the accounting process undergo regular training.

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.

To structure the types of risks we have categorized the next sections in the following clusters:

• Risks from external parameters
• Financial risks
• Legal risks and compliance risks
• Risks from operating activities

The external risks mainly include macroeconomic risks and regulatory risks.

Economic risks for our business models exist when positive impetus is not forthcoming from the global economy and markets of relevance for thyssenkrupp and growth rates fall below the economic forecasts.

In Europe there are uncertainties regarding the results of the Brexit negotiations with the UK and Europe-critical developments in individual member states. Individual debt crises in the euro zone also remain unresolved, so a crisis of confidence in the institutions of the EU and lower growth rates in the European economies are conceivable.

Risk scenarios simulate the impact of economic risks and exogenous shocks.

The political course and the budget deficit in the USA, slower growth rates in China, a prolonged recession in emerging economies like Brazil, or exogenous shocks such as a further escalation of violence in crisis regions could have major effects on the global economy; this would also affect thyssenkrupp. In the event of a severe exogenous shock the individual economic risks would be medium. We continuously monitor the corresponding country-specific conditions based on wide-ranging early warning indicators. In Groupwide risk scenarios we simulate the impacts of lower growth rates and changed exchange rates on our business models to enable us to take action and minimize risks at an early stage when necessary.

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

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. Overall the regulatory risks for thyssenkrupp are classified as medium.

As an energy-intensive industrial and services group, we face earnings risks on the global markets if additional costs are imposed under energy- and climate-related rules which we are not able to pass onto 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 cooperate with industry associations to reduce possible risks such as further rising energy costs. Concrete risks for Steel Europe in this connection are described in the section "Operational risks of the business areas".

Further regulatory risks may ensue from tax framework conditions which change over time or where there is legal uncertainty. For example certain tax benefits are currently being examined by the constitutional court. Should the court cases result in the benefits being removed and/or reduced, substantial back taxes cannot be excluded. In the concrete case of the ongoing constitutional court review of tax benefits granted in the past for thyssenkrupp CSA, as part of the sale of the Brazilian steel mill to Ternium we agreed to share the risk with the purchaser in the event of a negative decision by the courts.

The central responsibilities of thyssenkrupp AG include coordinating and managing finance requirements within the Group and securing the financial independence of the company as a whole. To achieve this we optimize Group financing and limit the financial risks. The individual risks identified in this risk category are presented below and are assessed as low.

We enter into financial instrument transactions in the financing area only with counterparties which 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.

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 foreign companies. We use the cash pooling system to allocate resources to Group companies internally according to requirements.

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 over-the-counter foreign currency forward contracts, interest rate swaps, cross currency swaps and commodity forward contracts with banks and trading 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 various policies in the framework of regular reporting.

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; our central hedging platform is mainly used for this. Translation risks arising from the conversion of foreign currency positions are generally not hedged.

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. The task of central interest rate management is to control and optimize this risk of changing interest rates. For this, 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, and our strategic business units are regularly tested for impairment. The risks identified in this category, which we classify in each case as medium, are monitored continuously and provisions are recognized where required.

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 with the support of independent experts. In addition, parts of the investments are aligned with the structure of the pension obligations in selected countries for the purposes of risk management (liability-driven investment).

In connection with the valuation of pensions, thyssenkrupp is exposed to the risk of falling interest rates. Lower discount rates for pension obligations result in pension provisions increasing further and weighing on equity.

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.

Legal and compliance risks include litigation risks, compliance risks focused on antitrust and corruption violations, and risks from trade restrictions.

We define litigation risks as risks in connection with pending or imminent lawsuits or regulatory or administrative court proceedings brought against thyssenkrupp. The thyssenkrupp Group uses a software tool with which litigation risks are systematically identified, categorized, evaluated and reported under the established 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 current estimates there are no litigation risks - with the exception of the compliance risks mentioned below - 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 Notes 15 and 20).

We operate a strict compliance program focused on reducing the risk of antitrust and corruption violations, because these offenses have enormous potential for damage, both financial and in terms of reputation. For this reason compliance risks in general are classified as high.

The Bremen public prosecutor ended all proceedings against Atlas Elektronik by issuing a forfeiture order in the amount of approx. €48 million. No fine was imposed. The support for the investigations and the further development and entrenchment of compliance and risk management structures at Atlas Elektronik were recognized by the public prosecutor.

thyssenkrupp Steel Europe AG, alongside other steel companies and associations, is the subject of ongoing investigations by the Federal Cartel Office into alleged cartel agreements relating to the product groups heavy plate and flat carbon steel. A further investigation relating to stainless steel was dropped against thyssenkrupp Steel Europe AG in October 2017. The investigations still ongoing concern the alleged fixing of surcharges and premiums on steel prices. thyssenkrupp takes this matter very seriously and immediately launched its own internal investigation with external support. Based on the facts currently known to us, we cannot exclude substantial adverse consequences with regard to the Group's asset, financial and earnings situation.

Due to the global nature of its business thyssenkrupp is exposed to possible risks stemming from trade restrictions such as anti-dumping/anti-subsidy tariffs, export restrictions, special monitoring measures, 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.

Risks from operating activities include procurement risks, production risks, sales risks, order risks, risks associated with information security and personnel risks.

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 through margin-securing measures and alternative procurement sources.

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 under financial risks.

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 addition we take out appropriate insurance and so transfer risks to external service providers. The remaining financial risks in this category are classified as medium.

Accident risks during the production, installation, maintenance and use of our products cannot be completely ruled out. A safety-oriented corporate culture and a comprehensive bundle of measures related to occupational safety and health help minimize the accident risks faced by our employees and subcontractors. However accidents cannot be completely prevented with these organizational measures.

In our production 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.

With the sale of our Brazilian steel mill in the 2016 / 2017 fiscal year the operational risks connected with operation of the plant were eliminated. These mainly include the risks of production losses described here.

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, we carry out market-oriented adjustments or relocate capacities.

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 therefore classify the sales risks as low.

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 collectively 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 project-related 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.

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. This is all the more important when entire value chains are transformed through advancing digitization.

The number of attacks by criminals and external services on the IT infrastructure of major German companies continues to increase. In this connection we have carried out measures to further improve our information security management and security technologies. One focus is to protect our production operations from unauthorized access for the purpose of espionage or sabotage. A group of IT security experts which has been continuously increased supports the Group with the early identification of risks. In addition, vulnerability analyses are carried out regularly with the support of our IT security team and external experts to verify the security of the infrastructure and if necessary take corrective action.

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 technical support required to safeguard confidentiality.

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 aims 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 overall as medium.

thyssenkrupp positions itself as an attractive employer and promotes the long-term retention of employees in the Group. This involves offering management development programs, career prospects and attractive incentive systems. We provide targeted support for our employees, inform interested young people about career opportunities at 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.

Components Technology –

The Components Technology business area is a global supplier of automotive and industrial components and as such is dependent on the performance of the corresponding markets.

Components Technology is a leading player in the powertrain sector. This position could be jeopardized by the increasing trend towards electrification. The business area is therefore intensifying its research and development efforts in the area of e-mobility and in the development of alternative products to counter possible sales declines in traditional products by building new areas of business.

For the core markets of the business area we expect continued growth in all product segments. However, this is subject to major uncertainty. The business area is in a good market situation in China. Slowing momentum of the markets in China could jeopardize our business prospects. The hoped-for growth markets of Brazil and South Africa are developing less strongly than expected. In the United States the prospects have darkened due to the promotion of coal and move away from eco-friendly energy sources by the US government. To lessen dependency on individual markets the business area is expanding its customer base, developing technical innovations, and strengthening its international presence.

In addition to the economic risks, further risks come from consolidation processes and further increasing price pressure both in the auto components industry and in the wind energy sector. We do not currently expect significant negative effects on the sales of our auto components from the emissions crisis at Volkswagen; however, price pressure will likely rise due to the already announced cost reduction programs. Government regulation efforts such as the debate over a diesel ban or possible tariffs on auto exports from Mexico to the USA pose a risk.

A general risk in the wind energy industry lies in dependence on national support 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 and the increasingly frequent auctioning of contracts. We are countering this price pressure with optimizations and efficiency enhancements under the corporate program "impact".

On the procurement side there are risks that 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.

With regard to ongoing technological innovations and improvements, risks from unplanned earnings impacts cannot be ruled out. 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 – Due to the international nature of Elevator Technology's business operations the uncertain global economy poses risks that could be reflected mainly in bad debt and project delays. As an additional 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. Protection against strong price pressure is provided by customer retention strategies, high service quality, efficiency programs and not least innovative and sustainable product solutions.

Both the service and modernization businesses are largely independent of economic fluctuations. Customer retention strategies help prevent possible losses of maintenance units. In addition the business area continuously implements efficiency programs to offset 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 largely anticipated so countermeasures and capacity adjustments can be carried out at an early stage. Inherent risks in the execution of complex major projects are countered by the use of project management measures. Risks from rising material prices can be offset by efficiency improvements in production and optimized procurement strategies.

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 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 to a very large extent by a high level of local value creation and hedged using financial instruments.

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) minimize 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 as far as possible, also to avoid damage to our reputation.

Industrial Solutions –

A major risk factor for the business area is the uncertainty concerning the performance of the markets relevant to its business units around the world, the stability of growth in the USA, and the future development of other major economies such as China, India, and Brazil. Due to falling oil and raw material prices there is a risk of lower demand for capital goods from customers in the oil and gas industries and the mining sector.

In addition, political developments in important sales regions (for example in the Middle East & Africa region and in Russia/Ukraine and Turkey) could negatively impact the project situation at Industrial Solutions, leading to project deferrals or cancellations.

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

The special risks described in the section "Order 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. Particular technological risks are associated with "first of their kind" contracts.

If in addition unexpected delays occur in the programs launched to optimize costs, these could have negative effects on our key performance indicators.

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 influences our earnings situation and 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 and digitize our logistics and the entire supply chain, e.g. through the further consolidation and central coordination of our purchasing activities as one of the market leaders.

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 cost reduction measures developed as part of Group and business area programs are raising efficiency and increasing profitability. At the same time we are intensifying our service and digitization activities for materials.

Systematic improvements to net working capital management and efficient receivables management help us minimize the risks of bad debt.

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 – To contain the risk of cyclical demand fluctuations Steel Europe optimizes costs in all areas, adjusts production levels in good time and focuses on less cyclical high-end market segments. The business area counters sales risks with appropriate staggering of contract terms and periods. If the economy were to deteriorate, the risk of customer insolvencies would increase. The business area mitigates this risk by intensive monitoring, using commercial credit insurance facilities and other appropriate instruments and by adjusting payment conditions. Constant optimization of supply chains reduces risks to quality and delivery performance.

Steel Europe counters intense competition on the market for flat steel products with its strengths in technological expertise and an even stronger focus on markets and 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 to market quickly. In addition, a quality management system geared to the requirements of the market ensures consistent improvements in product quality and helps secure a competitive market position.

Steel Europe counters the risk of rising raw materials prices by using alternative procurement sources, risk-reducing procurement strategies, active risk management, and margin-securing measures.

To reduce business interruption risks and improve preventive fire safety, funds are made available for ongoing preventive maintenance as well as modernization and investment. In the event of business interruptions, business continuity plans as well as emergency and crisis plans are in place specifying measures for remedying damage. The business area has integrated a business and technical risk controlling system for property insurance into its risk management process.

In addition, the move towards an energy system dominated by renewables in Germany is creating major challenges for energy-intensive industries in general and the steel sector in particular. Although planning certainty has been achieved by the continuation of exemptions for producers of in-house electricity in the Renewable Energies Act (EEG 2017), full notification of the amended EEG by the European Commission is still outstanding. 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 wholesale electricity prices is being countered at Steel Europe 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 further costs for emissions allowances in the third trading period of the EU emissions trading system from 2013 to 2020. 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. However, this risk is countered by hedging transactions. The models for continuing emissions trading after 2020 currently being discussed at European level contain significant risks.