Annual Report 2001 - KSPG AG

Production line for
car engine bearings shells
at the Papenburg plant
Risks of future development
(risk report)
Doing business inevitably entails risks
and rewards. At Kolbenschmidt Pierburg,
business opportunities are
seized and risks only accepted when
these are considered in all likelihood
to be controllable and conducive to
the economic success of the Group.
Given this, risk management is an
essential element of the processes
and decisions within our group.
General economic and industry
sector risks
Kolbenschmidt Pierburg AG and its
subsidiaries develop and manufacture
components, modules and systems
for the international automotive industry
and hence, the Group and its
subsidiaries are in their future business
development largely dependent on
how the automotive climate develops
worldwide.
The year 2001 was a period in which
the world's automotive industry was
battered by a recession unforeseeable
to this extent a year ago, and by the
terrorist attacks on the World Trade
Center in New York, and on the Pentagon,
Washington, on September 11,
2001. The reverberations will in all
likelihood be felt until far into the
current fiscal year 2002. According
to forecasts by market research organizations
and industry associations,
2002 will generally see declining production
and shipments in the three
most important automotive markets
of North America, Japan, and Western
Europe. Particularly lackluster are the
prospects in the USA. Ever since the
aftermath of the terrorist attacks, the
US manufacturers have been launching
zero-interest car financing programs.
This may have triggered demand but
The instruments for the identification,
analysis, control and monitoring of
risks as part of the risk management
system are defined groupwide.
Embedded in the annual strategic and
operative plans and accompanied by
monthly controlling reviews, risk reports
and meetings of the Risk Committee,
these risk management instruments
ensure that any potential risks
are identified in good time. In this way,
any necessary remedial action can be
initiated early on at the individual
companies, divisions, or at a Group
level. Moreover, whenever a defined
ceiling is exceeded, the Supervisory
Board is alerted.
the consequence is that new cars initially
planned for 2002 were bought
in 2001 in some instances. The decline
in Western Europe and Japan will
probably not be so severe as in North
America.
Some of our US customers have to
contend with financial problems and
the same applies to major rival suppliers
to the auto industry. Although
the Kolbenschmidt Pierburg Group
may in some instances benefit from
competitor weakness, itself it is exposed
to risk through the financial
problems of some customers. This is
reflected in reduced call-offs and fewer
orders placed with the Kolbenschmidt
Pierburg AG subsidiaries.
The impact of individual markets on the
economic situation of Kolbenschmidt
Pierburg is abated by the Group’s
measured globalization from an
economic point of view. Additionally,
downsizing measures already launched
the year before in the United States,
including programs for restructuring
and improved integration at individual
subsidiaries, are being hastened. At
the start of the new fiscal year, Kolbenschmidt
Pierburg AG decided to shut
down a part of the Ft. Wayne, Indiana,
plant at the turn of 2002/2003, in order
to accelerate the return to profit-
Verifying the risk management system
for workability is among the functions
of the statutory auditors (elected by
the stockholders’ meeting) during
their annual audit.
The potential risks to which the Kolbenschmidt
Pierburg Group is exposed
subdivide into general economic, industry
sector, performance, financial
as well as legal risks.
ability of the division’s US subsidiaries.
A consequence is that this plant at
Ft. Wayne will only be used for mass
production, the idled machines being
largely employed elsewhere by other
Group companies.
In the wake of the industry’s woes,
customers have stepped up their pressure
to obtain further price reductions.
This risk is contained by the creation
of additional product and process
innovations to generate broader
price/cost latitude and the realization
of product and process innovations
as well as the enactment of continuous
improvement processes and the enforcement
of strict cost management.
In the 2001 annual accounts, the accrual
for impending losses on uncompleted
contracts adequately provides
for any losses related to individual
products.
The current collective agreements
between the employer federations
and the German Metalworkers’ Union
expired February 28, 2002. At the end
of January, the Metalworkers’ Union
was demanding pay increases of 6.5
percent, which met with wide criticism.
Consensus will prove difficult and
industrial action at some of the
Group’s German locations cannot be
ruled out.
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