Annual Report 2010 - Frauenthal Holding AG

134 Annual Report 2010
Consolidated Financial Statements Frauenthal Holding Group 2010
(2009: EUR 8,003,000) had been sold to Nordea Bank. As in the previous year, the interest rate is the three-month Euribor
rate plus 115 basis points. There is no significant risk as the transaction involves guaranteed payments by Nordea Bank for
the invoices on the due dates. Daily monitoring means that there is ongoing information on the status of the receivables.
The budgets of the Automotive Components, Wholesale Plumbing Supplies and Industrial Honeycombs divisions are based on
the assumption that they will generate positive cash flows from operating activities. Since no major investments are planned,
Group liquidity is expected to be largely unchanged over the year as a whole, though seasonal fluctuations are anticipated.
No events likely to result in a major drain on liquidity are foreseen.
Default and credit risk
In all the divisions, the default and credit risk associated with receivables and the risk of default by counterparties is managed
by regular credit checks, active credit management and credit insurance. Specific provisions are recognised up to the
maximum default risk associated with receivables. As at the end of the reporting period the maximum default risk at Group
level was EUR 5,248,000. Note 18 contains a summary table of impaired receivables.
In the automotive component industry it is customary to conclude one- or multi-year contracts that define the products, and
establish the terms and conditions, but do not lay down binding supply quantities over the entire contract term. Whether a
component supplier can win or extend such contracts depends on its competitiveness. This is primarily a matter of price, but
also depends on the supplier’s ability to deliver the products required, the reliability of its logistics and quality standards, and
its ability to collaborate with the customer on new developments. Because of this, product quality, timeliness and customer
satisfaction are constantly monitored to enable management to react quickly to significant under-performance.
The customer risks to which the Frauenthal Group is exposed also include credit and default risks. Truck manufacturers are
mostly very large, multinational corporations, but their creditworthiness was eroded by the economic crisis, as it hit the
automotive sector particularly hard.
Because of this the Group’s debtor management system was reinforced and centralised in 2009. The starting point for this
was close observation of all payment delays. The Executive Board is notified of significant irregularities on a monthly basis,
and action is taken at all levels of the organisation involved to ensure that every delinquent invoice is tracked by the field
sales force.
The credit default swap (CDS) spreads of the Group’s key accounts were again monitored on a monthly basis during the reporting
period. Credit default swaps are financial instruments that make it possible to buy and sell default risks. The premium
(the CDS spread) reflects the market’s assessment of the creditworthiness of the reference entity.
This indicator deteriorated markedly as a result of the financial crisis. However, a major improvement began in August 2009,
and the spread remained largely stable from late 2009 up to mid-February 2011. The chart below shows the movements in
the CDS spreads of some major customers between 1 January 2009 and 16 February 2011.