a. Risk Management
As a global company serving a variety of different markets and customers, the Group is subject to certain general and industry-specific risks. These risks mainly relate to the industries the Group serves (e.g. uncertainty of future contracts, volatility of incoming orders, customer concentration, etc.), the Group’s business (e.g. currency exposure, competitive position, legal proceedings, etc.), and to major orders (e.g. payment risks, liabilities and performance of projects, cost overruns, etc.).
Andritz has a long-established Group-wide management steering committee whose main task is to identify nascent risks early and to take counter-measures. This is an important element in the active risk management within the Group.
The monitoring and management of financial risks are integral parts of Andritz’s Group-wide accounting and controlling activities. Continuous controlling and regular reporting should secure to identify major risks at an early stage and to take counter-measures, if necessary.
For most of the orders, the risk of payment failure by customers is reduced by bank guarantees and export insurances. Risks for deliveries in countries with political risk typically are also insured. Interest and exchange rate risks are limited and controlled by using derivative financial instruments, in particular forward exchange contracts and swaps.
The Group mostly enters into fixed forward foreign exchange contracts in managing its foreign exchange risk resulting from cash flows from current business activities. Transaction risk is calculated in each foreign currency and includes currency denominated assets and liabilities and certain off-balance sheet items such as highly probable future cash flows for firm commitments and highly probable purchases and sales. The currency risks of the Group occur due to the fact that the Group's operations, productions and markets are located in various countries. The Group carries its forward exchange contracts at fair value. The remaining period of most of the cash flow hedges does not exceed one year.
Cash flow risks are minimized by the Group’s cash management system which controls cash in- and outflows of all relevant Andritz affiliates. It also monitors the Group’s cash pooling activities in order to optimize net financing income.
