Annual Report 2005/06 - voestalpine

FinanCial insTrUmenTs
liquidity risk – Financing
The liquidity risk indicates the ability to raise
funds at any time to clear liabilities.
The essential instrument for controlling the
liquidity risk is a precise financial plan,
which, ensuing from the operative companies,
is submitted quarterly directly to the
Group treasury of voestalpine AG. A tool
developed by the Group for long-term
financial planning locates any financing
gaps. The funding requirements and bank
credit lines are determined from the consolidated
results.
Financing of operating funds is carried out by
the Group treasury. A central clearing system
implements a daily intra-group financial
equalization adjustment. Companies with
liquidity surpluses put the funds indirectly at
the disposal of companies with liquidity
requirements. The excess is placed with the
principal banks by the Group treasury. In this
way a decrease in the volume of borrowings
and an optimization of the net interest
income are achieved.
The sources of financing are selected on the
basis of the principle of bank independence.
Financial relationships currently exist with
about 25 different domestic and foreign
banks.
Credit risk
Credit risk describes losses which can occur
through non-fulfillment of contractual obligations
of individual partners.
Consolidated Financial Statements
The credit risks of the underlying transactions
are kept low by precise management of
receivables. Roughly 70% of the underlying
transactions are hedged through credit
insurance. In addition, there are bank
securities (guarantees, letters of credit).
Internal guidelines regulate the credit risk
management of financial transactions. The
minimum rating for investments in securities,
for example, is AA- according to Standard &
Poor’s. Furthermore, all investments and
derivatives transactions are limited per contracting
party, meaning that the amount of
the limit depends on the rating and the
amount of equity of the bank.
The credit risk for derivative financial
instruments is limited to transactions with a
positive market value and, of these, to
replacement costs. Therefore derivatives
transactions are only valued at 20% of the
limit (30% in the case of cross-currency
swaps). Derivatives transactions are almost
exclusively based on standardized global
contracts for financial futures.
price risk
Determination of price risk: To quantify
interest and currency risk, voestalpine AG
utilizes the value-at-risk concept.
The maximum loss potential within the next
business day and within one year is determined
with 95% certainty. The correlations
between the individual currencies are taken
into account. Interest rate management also
utilizes the present-value-basis-point-method.
Annual Report 2005/06