Financial risks primarily stem from trade receivables and Group financing, as well as currency, interest-rate and price shifts. Various WACKER departments are responsible for controlling and monitoring these risks. A detailed policy on dealing with financial risks has long been in use. We use original and derivative financial instruments to cover and control important financial needs and risks resulting from our operations. The use of financial instruments that are not based on actual or planned operational business is prohibited.
Policy on Dealing with Financial Risks Is Defined in Detail
WACKER minimizes risks stemming from trade receivables by demanding collateral (e.g. retention of title) depending on the nature and extent of the service provided. Preventive measures also include references and credit checks, as well as the evaluation of historical data from our business relationship to date (particularly payment behavior). Moreover, we take out credit insurance to minimize risks.
WACKER is exposed to currency, interest and pricing risks. The Group uses derivative financial instruments such as forward contracts to hedge against these risks. Among the derivatives we use are, in particular, currency-option and foreign-exchange contracts and foreign-exchange swaps. Foreign-exchange hedging is performed predominantly for the US dollar, the Japanese yen and the Singapore dollar. Interest-rate hedging is performed predominantly for the euro and the US dollar.
Derivatives expose WACKER to credit risks arising from non-performance by contracting partners. For this reason, business is only conducted with financially sound banks and partners. These transactions are governed by internal corporate procedures that stipulate separation of trading and processing. Processing is subject to stringent controls.
Financing and liquidity risks are likewise managed by our Corporate Finance department. Funding for our joint ventures is also managed centrally. WACKER’s credit lines are sufficient. The same applies to its cash and cash equivalents, which amounted to €305.3 million as per the reporting date. At the same time unused credit lines of some €800 million were granted. In fiscal 2008, WACKER increased net financial liabilities by €115.8 million. We consider the probability of these risks actually occurring to be low.
The vast majority of the Group’s pension guarantees are covered by the WACKER pension fund, pension-related funds, special-purpose assets and insurance plans. The largest share thereof is accounted for by the Wacker Chemie VVaG pension fund. This fund manages the pension insurance of WACKER’s German-based employees in accordance with its Articles of Incorporation and General Terms and Conditions of Insurance. The pension fund’s investments are generally exposed to general capital-market risks. These risks are limited via diversification into various different investment vehicles and, if necessary, through additional hedging measures. Sufficient coverage of pension obligations is ensured by way of WACKER financial payments as needed. WACKER’s unplanned financial payments to domestic and international pension funds amounted to €55.0 million in fiscal 2008.