Risk Report

Opportunities and Risk Management System

Business activity as defined by the Articles of Incorporation makes risk-taking unavoidable. These risks must, however, be manageable and controllable for the management. Effective and foresighted risk management is therefore an important and value-creating component among the management instruments employed by Salzgitter AG to ensure the existence of the company, the invested capital and current jobs.

In the Salzgitter Group, risk and opportunity management are treated separately as a matter of principle. Risks are mapped and tracked in a separate reporting system. By contrast, the identification and communication of opportunities forms an integral part of the controlling system that operates between our subsidiaries and associated companies and the holding company. This also includes, for example, measures to profile our strengths and access strategic growth potential that can be derived on a focused basis from a specially developed strategy atlas and with whose help we constantly monitor our market and product environment.

With regard to value-oriented corporate management, we weigh up risk and opportunity aspects.

The risk management incorporates all fully consolidated companies in the Steel, Trading and Services divisions − also including the non-consolidated Oswald Hydroforming GmbH & Co. KG and Telefonbau Marienfeld GmbH & Co. KG. In the Tubes Division, not only the fully consolidated companies, but also the joint venture Europipe GmbH, including Eupec PipeCoatings GmbH, are integrated into the risk management system in accordance with Salzgitter AG's guidelines.

The subsidiaries and associated companies of Salzgitter AG apply the risk management system autonomously. The management holding company specifies guidelines that constitute the basis on which to ensure adequate and uniform consideration and communication of risks within the Group. Beyond this, the system of risk management deployed by Salzgitter AG is also documented in a risk manual.

In order to improve the informative value of the groupwide risk portfolio, the risk management system is constantly being further developed and refined to meet the prevailing requirements. Based on the contents implemented in the previous financial year, principles for the continuing harmonization of damage evaluations were formulated this year in a more extensive set of guidelines.

A reporting system used by the entire Group ensures that management is provided with complete and timely information. Group companies report on the risk situation in monthly controlling reports, ad hoc and directly to the Executive Board. Almost all of the companies subject to reporting requirements use a Group database to ensure effective data handling. At Group level, the identified risks are analyzed, evaluated and meticulously tracked.

Measures to cope with and delimit risks can be introduced at an early stage and in a targeted manner as a result of the transparency gained with respect to risk-inherent developments and potential risks. At Salzgitter AG there is a clear demarcation between risk management and controlling, which are nevertheless geared to complementing each other. Actual risks can therefore be handled either through the medium of controlling (for example, by way of provisioning), or via the risk management system (by taking action to overcome the risk), or via both approaches augmenting each other.

Risks are considered an integral part of intra-year forecasting, medium-term planning and strategy discussions. To manage these risks, processes, regulations and tools are established. The aim is to avoid potential risks or to control them or to take corresponding measures while being appropriately aware of opportunities that might arise.

In terms of the likelihood of their occurrence, a distinction is drawn between improbable and probable risks. Improbable risks are events, which after careful commercial, technical and legal consideration of the circumstances, are deemed unlikely to occur and thus tend not to be expected. The conditions that must be fulfilled for this judgment to stand are documented, periodically examined and if necessary updated. Consideration of the sustained validity of the conditions set is an aspect of controlling and auditing at Salzgitter AG. The definition of probable risk means that loss or damage to the company resulting from an undesirable event can no longer be ruled out. In the interest of traceability and controllability, the quantitative extent of the calculated loss or damage is documented in the light of the relevant influencing factors.

With regard to the extent of loss or damage, a distinction is drawn between major risks in excess of € 25 million and other risks involving loss or damage of less than € 25 million. Risks must be recorded within the internal planning and controlling systems of the respective companies and communicated to Group management in accordance with the specific company reporting thresholds.