For internal communication purposes, the overall structure of risk categories covered within the Group has been centered around our core processes “Idea to Market,” “Offer to Cash” and “Operation & Maintenance,” complemented by processes relating to Management and Support in general. The categories “Idea to Market,” “Offer to Cash” and “Operation & Maintenance” include the entire range of performance/profitability and other risks, while Management covers the general business environment and industry-specific risks, business strategy risks and information technology risks. Financial and personnel risks are allocated to the area of Support.
Business Environment and Industry-specific Risks.
Future developments in the wider economy will be particularly important in determining the extent to which we are able to meet our targets. Over the last year, all the world’s national economies were affected by the financial and economic crisis. Although there are now some indications of a modest recovery, the crisis may continue to undermine our performance. In the Banking segment, it is possible that investment by our customers in new ATMs and other systems will suffer as a result of the increasing number of loan defaults; in the Retail segment, meanwhile, a more cautious approach to credit may delay new investment by our customers in the hardware, software and services provided by Wincor Nixdorf. A recovery in raw material and energy prices could also affect the Company’s earnings. In addition, we believe there is a high risk to ourselves and to our customers from unexpected events such as natural disasters and terrorist attacks.
The markets in which banks and retailers operate are characterized by tough competition, and this can generate additional pressure on prices for our hardware, software and services. In our view, this pressure is likely to increase in the present fiscal year. Alongside the risk posed to our business by the general market situation of our customers, Wincor Nixdorf is exposed to further risks from continuing internationalization, predatory competition and lower barriers to market entry for potential new competitors. This trend towards a more aggressive form of competition could have a detrimental impact on profits.
Business Strategy Risks.
Growth and success are fundamental to our business activities, and all the decisions we take on capital expenditure and corporate acquisitions are judged against these criteria. The Outsourcing (Glossary) business, which we have successfully introduced to the market over recent years and which involves our taking over related, large-scale processes on behalf of our customers, is an established part of our business. However, the complexity of such Outsourcing projects brings with it a high level of risk. We aim to counter these risks through timely risk analysis and ongoing risk management. By concentrating the risk process in the hands of a specialist team, and drawing on our experience of previous successful projects, we are able to structure the business processes that we take over in a way that minimizes risk while best meeting our own requirements and those of our customers. We also make use of insurance policies and other options in order to minimize downtime and risk.
Performance and Profitability Risks.
One of our aims is to position ourselves as the leading innovator and technology provider in our markets. Together with the fact that we are competing in markets where innovation plays a major role, this makes particular demands on our portfolio of solutions. In this context, there is a risk as regards the introduction by customers of new hardware and software. To counter this, as well as prioritizing intensive development work, we make every effort to identify customer needs at an early stage and to incorporate these needs into our hardware, software and services. This involves close collaboration with our customers.
Our leading position with regard to quality sets us apart from our competitors. Our aim here is to maintain and increase this edge. In order to achieve this aim, we need to identify and rectify potential weaknesses in our hardware, software and services as quickly as possible. To this end, we focus continuously on innovation and quality. Risks that could be caused by poor quality are countered through our quality and environmental management system. Specifically, this means reducing these risks to a minimum through the preventive integration of risk assessment at every stage of development, a strict system for authorizing releases and appropriate insurance.
As a producer of ATMs and checkout systems (Glossary) , for example, we have to comply with the environmental regulations and laws that apply to our production sites, and our products have to meet key requirements with respect to returns and materials, etc. To ensure that this is the case, we have implemented an ISO 14001-certified environmental management system.
Personnel Risks.
The work performed by our staff is essential to the growth and development of our Company. We are in competition with other companies for highly qualified specialist and managerial employees. In order to attract such people and retain them over the long term, we offer attractive terms of employment and a comprehensive training program. We do not see any issues that may pose a risk to the recruitment of the specialist and managerial staff we need in line with our objectives.
Information Technology Risks.
Information security and data protection are particularly important to our customers in the banking industry. Now that Wincor Nixdorf has evolved to become a provider of IT solutions for banks and retailers, e.g., in the area of Outsourcing, the risks associated with the availability, integrity and confidentiality of data are of growing significance to us. One of the ways in which we have responded to this challenge is through ISO 27001 certification. The aim of the management system described in this standard is to ensure the availability, integrity and confidentiality of data. These measures may be impaired when IT systems are unavailable, possibly leading to claims for compensation from our business partners. System malfunction can be caused by outside attacks, e.g., through viruses and trojans. Given that similar risks are likely to exist in the future, we constantly strive to improve the information security of our systems.
In this context, our information security management system supports the continuous development of existing systems by conducting targeted analyses to establish where additional protection is needed. To prevent operational disruptions caused by external factors, such as viruses penetrating the computer system, we always deploy the latest hardware and software solutions (Glossary) available on the market. In addition, our IT systems and architectures are regularly audited by independent experts. To ensure this level of protection remains in place at all times, the departments concerned work strictly to the above-mentioned TÜV/ISO standards.
Financial Risks.
Wincor Nixdorf’s business is exposed to currency, interest rate, liquidity and credit risks. The Group treasury function and efforts to limit financial risk are, to a large extent, managed centrally.
The risk of a change in interest rates arises from taking up credit tied to the market rate. 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, therefore, means that we are exposed to an interest rate risk as soon as that rate increases. In order to counteract this risk, we have concluded contracts relating to interest rate options.
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, which is then hedged up to 100% (depending on volume and currency) on a rolling 12-month basis by means of suitable financial instruments.
Since the companies making up the Wincor Nixdorf Group are largely refinanced centrally, there is a risk that liquidity reserves may be insufficient to settle financial obligations at the correct time. Wincor Nixdorf has provided for this eventuality by establishing reserves in the form of unused credit lines, and by treating cash flow (Glossary) as one of the Group’s key control indicators and to a monthly review.
We reduce credit default 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.
The risks to which Wincor Nixdorf is exposed in relation to financial instruments are explained in detail in Chapter 21 of the Notes to the Consolidated Financial Statement.
Capital Market as a Risk to Pension Commitments
and Corresponding Plan Assets.
Share, bond, property and other markets are subject to fluctuations in value that can also have an effect on our plan assets. Equally, changes in the 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, mortality rates, increases in health care costs and other factors. We aim to mitigate the impact of these factors by assuring that assets are distributed in a balanced and flexible manner. However, 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 have a negative impact on the financial position and profitability of Wincor Nixdorf.
Other Risks.
We are not presently aware of any actual or potential legal disputes that could affect the financial situation of the Group to any significant extent. However, Wincor Nixdorf is exposed to risks in connection with possible legal disputes in the future. Legal disputes may arise in the ordinary course of business, for instance, with regard to claims of incorrect provision of products and services, product liability, product defects, quality issues or industrial property right infringements. There can be no guarantee that the outcome of such or other legal disputes will not be detrimental to the business activities or the reputation of Wincor Nixdorf. Claims of this nature and legal disputes, some of which with a significant impact on the Group’s financial situation, cannot be ruled out entirely for the future.
Overall Risk.
As at the reporting date, and in the foreseeable future, the Board of Directors is not aware of any individual risk that could pose a danger to the continued existence of the Wincor Nixdorf Group. Equally, in the view of the Board of Directors, the sum of all risks does not show Wincor Nixdorf to be in any jeopardy.
