Audi 2007 Annual Report Download - page 168

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There are diverse risks associated with the Audi Group’s operating activities that could sub-
stantially undermine its financial position and financial performance.
These include critical occurrences such as major fires and explosions that could damage
or destroy assets and also cause considerable consequential losses by hindering the pro-
duction process. Production problems could take the form of disruptions to the energy sup-
ply and technical disruptions, in particular to information technology. Although such occur-
rences harbor considerable potential losses, their probability is viewed as relatively low. In
addition, adequate insurance coverage has been taken out on an economically meaningful
scope and preventive measures, such as fire protection systems, installed. The high flexibil-
ity of the Audi production network also reduces risk.
The manufacturing process might also be hampered by supply delays or non-delivery as
a result of tool breakage, losses from natural disasters and strikes at suppliers or in the
transportation sector. A rise in the number of crises at suppliers, in some cases leading to
their insolvency, has furthermore been observed. In addition to taking out appropriate in-
surance coverage, the Audi Group implements a detailed supplier selection, monitoring and
steering process to limit any risks to its financial performance early on.
The increasingly close ties between automotive manufacturers and the supply industry
bring with them the potential for both economic benefits and growing interdependence.
The exclusive use of innovative technologies by suppliers with global operations is lending
momentum to this trend. The Audi Group counters the resulting risks, for example, by defin-
ing appropriate contractual terms and retaining title over tools used by third-party compa-
nies.
The complex product development process for new vehicles and components entails di-
verse potential risks, such as delays, essential changes to the product at short notice and
the loss of expertise as a result of the involvement of third-party service providers.
As a manufacturer of premium-segment vehicles, the Audi Group has installed extensive,
efficient quality management procedures. Nevertheless, it is impossible to entirely rule out
potential product liability risks. These could result in significant financial losses to the Com-
pany, in addition to harming its image.
Infringement of statutory regulations may occur in the course of operating activities.
These risks are limited by Group-wide procedures and ongoing monitoring of changes in the
law.
The growing electronic networking of processes within the Audi Group presents poten-
tial information and IT risks. In addition to the risk of failure of key systems controlling busi-
ness processes, financial performance could be adversely affected by unauthorized access,
destruction and misuse, as well as by a heterogeneous system landscape. These risks are
appropriately cushioned by the implementation of Company-wide procedures, high security
standards and targeted communication with employees.
The financial risks resulting from the Audi Group’s business activities comprise market price
risks (exchange rate, interest rate and commodity price risks), creditworthiness risks and
liquidity risks.
Foreign exchange risks, relating in particular to the U.S. dollar, the pound sterling and
the Japanese yen, are also of particular relevance to the Audi Group in view of its worldwide
sales markets.
Detailed information on the hedging policy and on risk management in the area of finan-
cial risks, in particular relating to the use of derivative financial instruments in hedging
transactions, is presented in the Notes in “Other particulars” under Note 35 “Management
of financial risks.”
Risks from operating
activities
Financial risks