Annual Report 2011

The operating activities of these Business Units
have comparable economic characteristics and
exhibit a similar long-term financial performance.
All Business Units manufacture machine tools and
offer related services. Production at all company
locations is made-to-order. Our customers are
manufacturing companies that use our products to
make capital goods for their customers. Product
sales and marketing at all company locations is
preferably conducted directly by the regional sales
and marketing organizations and the technical sales
officers for the respective factories. All Business
Units will also engage the services of independent
sales representatives as required to ensure more
effective global coverage.
The Starrag Group thus has one reportable segment
machine tools; segment data corresponds to
the data in the consolidated financial statements.
Risk management
A diligent handling of all strategic, financial and
operational risks is a top priority for the Board of
Directors and the Executive Board. Starrag Group
has a comprehensive process for the risk management,
which is reviewed by the Executive Board
and the Board of Directors on an annual basis.
The Management Board appointed a risk management
representative for the moderation and implementation
of the risk management and assigned
one responsible member of the Executive Board to
each risk area.
In the annual risk review there is a diligent identification,
assessment, analysis and evaluation
of risks and appropriate measures are defined to
reduce the risks. This information is documented
in a group-wide risk matrix. The implementation
of the measures is monitored by the risk management
representative. In business processes with
recurring risks the measures are integrated as
process steps in the operative processes of the
daily business. On an annual basis, the Executive
Board reports nature, extent and assessment of
Starrag Group Annual Report 2011 67
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significant risks and the measures taken for risk
minimization to the Board of Directors. Risks in accounting
and financial reporting are monitored and
reduced by an adequate internal control system.
Financial risk management
The main risks occurring from the group’s financial
instruments consist of credit risk, counterparty risk,
foreign currency risk, interest rate risk and liquidity
risk.
Credit risk
The credit risk is limited by the number and the
geographical spread of customers’ receivables.
In addition, it is limited by the adequate examination
of the financial situation of customers before
entering into a contract. Mostly, customers make
advance payments upon order acknowledgement.
If appropriate, shipment only follows upon advance
payment or letter of credit. The outstanding
receivables are constantly monitored.
Counterparty risk
The Starrag Group mainly holds its cash and cash
equivalents as deposits or current account deposits
with major creditworthy banks. Generally these
deposits have durations of less than three months.
Transactions with derivative financial instruments
are only concluded with major financial institutes.
Foreign currency risk
The Starrag Group does not enter into business
operations in foreign currencies which show an
extraordinary high volatility. The foreign currency
risk results mainly from sales and purchases in
foreign currencies other than in the functional currency.
If adequate, hedge instruments like forward
exchange contracts and currency option contracts
with internationally well rated banks are applied to
hedge business in foreign currencies.
As well, probable future orders will be hedged in
certain cases. Foreign currency risks occurring
from the translation of income statement and balance
sheet positions of foreign group companies
are not secured.