Our business is exposed to credit, currency and interest rate risks. The Group treasury function and efforts to limit financial risk are managed centrally. Interest expenses are mainly linked to the short-term variable market interest rate (EURIBOR), plus a margin. This margin can be subject to change depending on certain financial ratios. Being tied to a market interest rate means that we are exposed to an interest rate risk. We have entered into interest rate options to hedge these risks. As a result, the effective interest rate on a financial debt in the amount of €150 million (plus margin) fluctuates between 1.75% and 5.0%. We have also negotiated a fixed interest swap at 3.797% on €50 million, as a hedge against rising money market interest rates.
The global nature of the Group generates payments in both directions in a range of currencies. Incoming and outgoing payments in individual currencies are netted off against each other. Thus, by selecting suitable suppliers and making appropriate location-related decisions, we actively seek to create a natural hedging effect to the greatest extent possible. The netted-off amounts represent our remaining exchange rate risk. These are then hedged up to 100% (depending on volume and currency) on a rolling 12-month basis by means of suitable financial instruments.
We reduce credit risks by consistently obtaining credit reports, setting credit limits and running a proactive debtor management function, including a payment reminder system and active debt collection. Letters of credit are used to secure receivables from countries classified as presenting a credit risk.
Capital Market as a Risk to Pension Commitments.
Share, bond, property and other markets are subject to fluctuations in valuation that can also have an effect on our plan asset. Equally, changes in rate of return can affect our pension commitments. Other considerations, which may also lead to an increase or reduction in pension and other commitments, include income trends, the ratio of those contributing to pension schemes and those receiving benefits from them, the mortality rates, increases in healthcare costs and other factors. Such changes can have a negative impact on pension expenses, future contributions and equity. As such, it is possible that future pension expenses and contributions may also have a negative impact on the financial position and profitability of Wincor Nixdorf.
