Full of Energy - Energie AG Oberösterreich

ANNUAL REPORT2007/2008THE GROUPGROUP MANAGEMENT REPORTTHE ENERGY SEGMENTTHE WASTE MANAGEMENT SEGMENTTHE WATER SEGMENTCONSOLIDATED FINANCIAL STATEMENTS76●●●conducted with counterparties with a very highrating in order to minimize any risks of deteriorationin the counterparty rating. The exchange-raterisk in connection with securities and funds in ourportfolio is limited by a conservative investmentpolicy and by continuous monitoring. With regardto new acquisitions, we also strive for a conservativedirection of the financial risks of these newparticipations in the course of the post-mergerintegration process.For 2008, the rating of Energie AG was confirmedto be "A+" (Outlook negative). Given the currentvolatile conditions on capital markets, this result isof particular importance in order to secure the standingof the Group on international capital markets.ParticipationsParticipation risks are the result of fluctuations inthe shares held, in the dividends, the pro-rata netincome for the year in the case of associated companieswith at-equity consolidation, and of liabilities.The risks are optimized by identifying, analyzing,quantifying and monitoring them. Risk controldepends on the shares held and the options toexert influence.Acquisitions and investment projectsImplementation of the Group’s value-based growthstrategy is based on successful acquisitions and in -vestment projects. The high level of capital em -ployed and the long-term capital tie-up require aparticularly careful balancing of the many opportunitiesand exposures. Acquisition and investmentdecisions of Energie AG are therefore taken on thebasis of risk-adequate capital costs for the specificcountry and business area, and by taking intoaccount aspects that will enhance the value andthat are relevant for the rating.As the time frame for standard reporting on riskmanagement is two years, an additional scenariomethod was developed for major acquisitions andinvestments that is part of every project evaluation.ITInformation and communication technologies areof special significance when controlling and im -ple menting the business processes of Energie AG.●●Both IT risks as such and IT-induced operating riskswere identified and valuated in a group-wide as -sessment in the course of the business year underreview. A separate and independent IT center, whichis continuously updated to the latest state of theart, is operated in Linz, in order to ensure maximumsecurity and safety. Moreover, a back-up computercenter at Wegscheid minimizes the default risk.The Group’s IT control department is responsiblefor defining uniform IT standards and for a comprehensiveIT security management. It also monitorsimplementation.Human Resources and OrganizationEnergie AG competes with other companies on anincreasingly fiercer level for qualified staff. For thefirst time a management program was carried outas part of the Energie AG Management Academywhich contributed towards maintaining the highquality of our international management teamsand towards pro-actively presenting new trends.Excellent results have been obtained in the field ofsustainable health care with the "energy @work"project. It makes sure that the common success andknowledge potential is used for the Group, at amaximum level of satisfaction and good health forall staff members.CounterpartiesIn connection with financial and energy trading ac -tivi ties, Energie AG only engages in transactions withcounterparties of first-class rating, in order to minimizecounterparty risks. The risk is further re strictedby a limit system and by monitoring. For the purposeof engaging in hedging transactions and commodityfutures transactions with several counterparties, EnergieAG has signed a Master Agreement for FinancialDerivatives Transactions with a hedging annexshown in the Annexes in order to minimize risks. Forthe opera tional implementation of this hedgingannex, the discounted contracted values withmark-to-market valuation are coordinated with thecounterparties concerned on a weekly basis.Credit risks in connection with distribution are limit edby a regular analysis of the rating of customers inour portfolio.●●●●●Legal IssuesThere are risks due to legal disputes, as well as theintroduction and amendment of laws. These risksare countered by obtaining optimum advice fromintra-group lawyers, by consulting with externalspecialists, as well as by monitoring and lobbying.A professional asset management and a consistentcost management are the control measures appliedto future risks resulting from regulatory interventionsin the gas and electricity distribution business areas.ProcurementProcurement risk is monitored and controlled bymeans of institutionalized processes.Production, Distribution, Waste-Managementand Infrastructure FacilitiesEnergie AG counters risks related to facilities andtheir failures by strict maintenance and qualitycontrols, an optimized maintenance strategy andinsurance coverage.We counter the increase in electricity-grid interrup -tions due to adverse weather conditions by prioritizingground cables in forest areas. We embarkedon this special project, which has become part ofour medium-term planning, at the beginning of thecurrent business year.Water LevelsOne of the greatest individual risks is the volatilityof water levels in the rivers used for producingelectricity at hydro power stations. The risk is minimizedby diversification of our power station portfolioand an optimized generation mix. During theexpired business year, water levels were at anabove-average height.CompetitionBoth on account of electricity price guarantees, asdemanded by economic policy, and the steadily increasingcompetitive pressure on the market, there isthe risk of losing customers and margins. The companysecures its competitive ability internally by continuouslyoptimizing its in-house processes and bypursuing a consistent cost and investment management.On an external basis, measures are taken on anongoing basis, such as customer re tention activities.●On the waste-management markets of Austriaand Germany there is a price risk, which is due tothe increase in incineration capacities available onthe market and the simultaneous increase of competitivepressure caused by illegal dumping andcross-border shipments. We counter this risk byoptimizing measures concerning our organization,as well as by more monitoring of the businessenvironment.Energy MarketsThe risks caused by energy markets are counteredby hedging instruments for fuel purchases and electricitysales. Price hedging deals are entered forelectricity distribution, and a spark-spread triggeredcash-flow hedge, plus simultaneous electricityfutures and gas swaps in euros are signed for theCCGT power station, which is currently in a testoperationphase.The contracts signed to procure hard coal as a primaryenergy are always signed in the fall for thenext supply year. As these purchases always takeplace almost at the same time at which prices arefixed for the intra-group billing of electricity, theinternally invoiced price reflects a correlation be -tween the price of coal and the price of electricity,as it exists on the market. This allows a partial in -ternal hedge against the risk of coal prices.On account of its electricity generation portfolio,Energie AG is exposed to risks from the EU tradingsystem for CO 2 emissions. These may be the re -sult, in particular, of changes in the allocation rulesand the national emission budget for the secondtrad ing period (2008 – 2012), as well as of unexpectedlyhigh prices for CO 2 certificates. In a forwardlookingapproach, CO 2 certificates are obtainedand also taken into account when managing theportfolio. Risk limits, which are monitored on aregular basis, apply to trading transactions whichdo not only serve hedging purposes.As of 30 September 2008, no risks can be identifiedfor the 2008/2009 business year that might have aneffect threatening the existence of Energie AG, eitherseparately or jointly.77