Annual Report 2010 - Frauenthal Holding AG

62 Annual Report 2010
Operating Review
risk report
In order to comply with Rule 69 of the Austrian Code of
Corporate Governance and to make further improvements
in this area, we began developing a formalised, uniform
Group-wide risk management system in 2007. The purpose
of this project was to identify risks at an early stage and
counter them by taking appropriate action to minimise
deviations from our targets.
In 2010 we again upgraded our risk management mechanisms
(in particular, the internal control system), and
established metrics and early warning indicators for the
main risks involved. Breaching of these thresholds triggers
predefined reporting duties or risk control actions.
During the year, risks were investigated for their probability
and potential impact as a basis for managing them. The
main types of risk exposures identified in 2010 were:
Market risk;
Competition risk;
Customer risk;
Liquidity risk.
Supply risk; and
Compliance risk.
Presentation on these risk categories and related risk control
activities are given to the audit committee, and they
are constantly monitored by the Executive Board. All the
necessary policy changes are submitted to the audit committee
on a quarterly basis, in the form of detailed internal
control system reports. These update the risk matrix in the
light of newly identified risks, and the reassessment or
removal of risks where appropriate.
The Group is also confronted with environmental, operational
and financial risks (e.g. foreign currency risk).
Automotive Components Division
CuStoMer riSk
In the automotive component (springs, U-bolts, air reservoirs
and diesel catalysts) business it is customary to make
one or multi-year blanket agreements 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.
The key performance indicator reporting system introduced
at the start of 2010 tracks parameters such as delivery
reliability, product quality and customer satisfaction. The
factories report these to management on a monthly basis
together with detailed comments. In the event targets are
missed by a wide margin early action can be taken.
In 2010 Automotive Components obtained TS 16949 certification.
This standard is aimed at enhancing system and
process quality, and customer satisfaction.
The customer risks to which the Frauenthal Group is exposed
also include credit and default risks. Truck manufacturers
are mostly very large, multinational corporations.
Their creditworthiness was eroded by the 2009 economic
crisis, which hit the automotive sector particularly hard, but
improved markedly in 2010.
Close monitoring of all payment delays is the cornerstone
of our centralised receivables management system. The
Executive Board is notified of significant irregularities on a
monthly basis, and action is taken at all relevant levels of
the organisation to ensure that every delinquent invoice is
tracked by the field sales force.
In addition, we began watching our key accounts’ credit
default swap (CDS) spreads in 2009. The main risk measure
is the premium (the CDS spread), which depends on
the market’s assessment of the creditworthiness of the