The following risk management-related information is part of the extensive Dürr Group risk management report in our Annual Report 2022. Details can be accessed in the → risk management report.
Our strategy is to manage the risks associated with our entrepreneurial actions so as to achieve a balanced ratio to the opportunities. To this end, we make use of an effective risk management system.
Our risk management system is deployed throughout the Group. It has existed in its fundamental structure since 2008, and is continually adapted to new requirements. In 2022, the Audit Committee of the Supervisory Board adopted a resolution to conduct an audit of the appropriateness and effectiveness of the risk management system in accordance with Auditing Standard 981 of the German Institute of Public Auditors. This audit is to be completed in 2023.
Our risk management system is designed to meet the needs of the mechanical and plant engineering business. It allows for a systematic, consistent risk recording, analysis and – to the extent possible – assessment, and for effective countermeasures to be initiated at an early stage to avoid serious individual risks, to transfer transferable risks to third parties where this makes economic sense, and generally to reduce the overall risk. We document all specific risks, provided that they are identifiable and sufficiently concrete. Non-quantifiable strategic risks as well as general risks with a low probability of occurring are not taken into account, unless they are risks with very high damage potential (referred to as extreme risks). We also document and evaluate our opportunities; the relevant information is contained in the → “Opportunities” page 114 chapter of the Annual Report 2022.
The risk management system covers all essential business and decision-making processes. We maintain open dealings with risks and encourage employees to report any misdirected developments at an early stage. The risk management process takes account of all risks of the participating companies. The central risk management team at Dürr AG initiates the nine-stage process every six months. The centerpiece of this standard risk cycle is the risk inventory of the Group’s companies. In the risk inventory, individual risks are identified, assessed and consolidated, i.e. classified into 16 specific risk fields (chart 2.75). The risk fields cover management, core and supporting processes as well as external risk areas.
The risk managers of the operating units and Dürr AG are responsible for assessing individual risks. They use the risk management manual as well as risk structure spreadsheets to do so. The assessment process consists of three stages: First of all, the damage potential is calculated, i.e. the maximum impact on EBIT, or equity respectively, that can result from a risk in the following 24 months. Next, we assess the probability of occurrence of a specific risk. In a third step, the effectiveness of possible countermeasures is examined and assessed using a risk-reducing factor.
The bottom line is the net risk potential, i.e. the net equity risk that remains after taking the probability of occurrence and the effectiveness of countermeasures into account. The lower the probability of occurrence and the higher the effectiveness of countermeasures, the more sharply the net risk declines. The net risks of the 16 risk fields correspond to the sum total of net risks of all individual risks assigned. Depending on the extent of the net risk, each risk field is assigned to one of the four following categories:
- Very low (≤ €5 million)
- Low (> €5 million to ≤ €20 million)
- Medium (> €20 million to ≤ €40 million)
- High (> €40 million)
The net risks of all 16 risk fields are totaled to produce the Group’s entire potential risk exposure (aggregate net equity risk). Interdependencies between material individual risks as well as between net risks of the 16 risk fields are analyzed and included in the overall risk potential. The overall risk potential is subsequently compared to the risk-bearing capacity. The risk-bearing capacity is based on the liquidity expected for the following two years. If the overall risk potential exceeds a certain threshold, the Board of Management is informed in order to initiate risk-reducing measures without delay. Should the overall risk potential exceed the risk-bearing capacity, the Company’s continued existence is assumed to be in danger.
The Group companies and divisions prepare their risk reports after the risk inventory has been completed. These reports constitute the basis for the Group Risk Report of Dürr AG, containing information on individual risks and overall risk. Following an analysis by the Board of Management and the Dürr Management Board, the Group Risk Report is forwarded to the Supervisory Board and then discussed at length by the Audit Committee. Next, the Audit Committee Chairman reports to the Supervisory Board.
Acute risks are reported without delay to the Board of Management and the Heads of the relevant divisions. The risk managers of the Group, divisions and Group companies are responsible for the process of identifying, assessing, managing and monitoring risks as well as for reporting; in most cases, these are the CFOs of the Group companies or the Heads of the controlling departments. The Internal Audit department is also involved and verifies compliance with the defined processes on a regular basis.
The overall risk potential at the end of 2022 amounted to approximately €553 million, a significant increase of approximately €115 million or 26% year-on-year. The risks associated with the coronavirus pandemic saw a further decline in comparison with the previous year, but are still present. In contrast, risks have increased significantly as a result of the downturn in the global economy and higher procurement risks due to continuing supply bottlenecks and price hikes, although these risks have recently decreased again to a slight degree. Market entry of new producers of battery-powered electric vehicles is also leading to an increase in credit risks. The turnaround in interest rates resulted in increased risks relating to the recoverability of goodwill. Market-related risks have also increased in light of rising tensions between China and Taiwan. An escalation of the situation into a military conflict could have serious consequences for global supply chains and the world economy. In absolute terms, “Finance/controlling”, “Economic environment/capital market”, and “Market” were the main risk fields, followed by “Procurement” and “Taxes/legislation/compliance”.The overall risk potential includes the net risk potential of 261 assessed individual risks (previous year: 262 individual risks). It reflects the challenging environment of our business at a time when the pandemic is subsiding but economic growth is being impacted by inflation, supply chain bottlenecks, fears of recession, and political as well as military conflicts. However, the overall risk potential accounts for less than half of the risk-bearing capacity, so we do not consider it to be a cause for concern but still manageable. Risks that might endanger the Group’s ability to continue as a going concern, whether separately or in combination with other risks, are not discernible from today’s perspective.
|Risk field||Net risk 2022|
|Economic environment / capital market||x|
|Sales / bid phase||x|
|Project execution / engineering||x|
|Taxes / legislation / compliance||x|
|Research & development||x|
|Corporate / information security||x|
|Society / environment||x|
|Finance / controlling||x|
|1 (≤ €5 million)|
2 (> €5 million to ≤ €20 million)
3 (> €20 million to ≤ €40 million)
4 (> €40 million)
Please find all information regarding our risk management in the → risk management report in our Annual Report 2022.
Under UK tax law, we are obliged to publish our tax risk strategy. Further details can be found HERE (only available in English).