Annual Report 2005/06 - voestalpine

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Consolidated Financial Statements 0 Annual Report 2005/06 Currency risk The biggest currency item of the Group arises from raw material acquisitions in USD and to a lesser degree from exports to the non-euro area. Initially there is a natural hedge, because trade receivables in USD are balanced by liabilities for the purchase of raw materials in USD (USD netting). There is further potential from the utilization of derivative hedging instruments. voestalpine AG hedges the budgeted foreign currency payment flows (net) of the next 12 months. Longer-term hedging occurs only for contractual business projects. The coverage ratio is between 50% and 100%. The further in the future the cash flow, the lower the security ratio. There is no indirect currency risk. interest rate risk voestalpine AG differentiates between cash flow risk (the risk that interest expenses or interest income change for the worse) for variable-interest financial instruments and present value risk for fixed-interest financial instruments. The Group strategy aims at reducing the impact volatility of interest rate fluctuations by using the portfolio effect. As to interest rate commitments, the strategy is directed at achieving approximate equilibrium between fixed and variable rates; in periods of lower interest rates, an extension of interest rate commitments is aimed for. The items on the assets side are mainly invested in the securities funds V47 and V54. There are three sub-funds, which are contained in two umbrella funds, one of which is used to cover severance pay and pension obligations. In valuing securities, the fair value option is used and is allocated to the category “available for sale” in the balance sheet. Financial risk management – Corporate finance organization Financial risk management is centrally organized regarding guideline competence, strategy determination and goal definition. The existing rules cover targets, principles, responsibilities and competences both for the Group treasury and for the individual Group companies. In addition, they deal with the topics of pooling, money market, credit and securities management, foreign exchange, interest and liquidity risk. The Group treasury, acting as a service center, is responsible for implementation. Three different departments are responsible for the conclusion of contracts, the processing of transactions and the recording of entries, which guarantees a sixeyes principle. The guidelines and observance thereof, as well as the whole business process, are audited annually by an additional external auditor.
The fixed assets are financed completely by shareholder equity. The equity ratio has been stable at approx. 40% for a number of years now. The management of the Group capital structure aims at preserving the Group’s good credit rating and at limiting the net gearing ratio to a maximum of 70%. It is part of our corporate policy to keep a constant watch on financial risks, to quantify them and to hedge against them, where it is wise to do so. Our willingness to accept risk tends to be low. Risks posing a threat to the continued existence of the companies have to be hedged, going concerns have to be hedged, in other respects the strategy aims at reducing fluctuations of cash flow and income. Hedging of market risks is done to a large extent by means of derivative financial instruments. Derivative financial instruments Derivative financial instruments are used exclusively for hedging and include interest rate and currency swaps, cross-currency swaps, FX outrights and options. They are stated at fair value. Hedge accounting is applied to the majority of derivative financial instruments. Any resultant gains or losses are recognized directly in equity. When the underlying transaction is recognized, the cumulative gain or loss previously recognized directly in equity is recognized as profit or loss. Consolidated Financial Statements Risks from fluctuations in the prices of raw materials (with the exception of the currency risk indirectly arising from this) are not currently hedged using derivative instruments. Fair value Derivative currency transactions are valued daily according to the mark-to-market method. This evaluation determines the value that would be realized if the hedging operation was netted (liquidation method). sToCK opTion program In the 2001/02 business year, voestalpine AG started a stock option program. Members of the Management Board of voestalpine were granted 156,228 options and executives were granted 799,668 options. The options can be exercised within the period from August 1, 2003, to July 31, 2006. During this period the options may only be exercised within 20 days after the announcement of consolidated quarterly results or consolidated financial statements. The exercise of options depends on trends shown by the share price of voestalpine AG. If the share price at the exercise date is at least 15% or 20% above the exercise price, 50% or 100% of the options may be exercised. At the exercise date, the participant must be an employee of the Group. The options and the rights to exercise are non-transferable. Annual Report 2005/06 1
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Annual Report 2005/06 www.voestalpi
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Who we are We are a leading Europea
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tHe GrOUP at a GLaNce voestalpine G
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Divisional reporTs 48 Division Stee
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voestalpine automotive gmbh voestal
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mag. Dr. Josef peischer Member of t
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Dr. Wolfgang eder (Born 1952, at vo
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In a market environment characteriz
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2002 2003 200 200 2000/01 Revenue (
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+253.0% 3. 2 . 0 Rubrik 13.13 1 200
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priCe perFormanCe oF The voestalpin
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Share capital: EUR 287,784,423.30 d
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With regard to Rule 49 of the Code,
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+164.7% 2, .1 3,1 .1 Rubrik , 01. 1
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eport of the Management Board Manag
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BUsiness perFormanCe oF The voestal
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stoppage due to the start-up of ope
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motive), as well as in the special
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In May 2005, the Division Railway S
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In the first quarter of the busines
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Consolidated Financial Statements v
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Consolidated Financial Statements V
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1 Consolidated Financial Statements
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1 Consolidated Financial Statements
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1 Service voestalpine Grobblech Gmb
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Service voestalpine Rotec GmbH Grub
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1 Service Hot rolled. Product that
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voestalpine AG voestalpine-Strasse
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