Risk management and risks
Poor economic growth, loss of market share, failure to identify new technologies, foreign exchange risks, loss of employee knowledge, quality problems, supplier and customer insolvencies, criminal acts, data losses and natural disasters are risks that could threaten our corporate success.
Risks have to be identified early on in order to be able to initiate suitable measures for minimizing or eliminating these risks. Our risk management system, which is being evolved from year to year, is of key importance in this connection. We are proud that our risk management system is not only being documented but is, first and foremost, being lived. The Management Board, our executives and staff perform their duties with an enormous sense of responsibility. A risk coordinator was appointed in 2002. He will regularly conduct risk analyses with the corresponding employees and compile timely reports. Moreover, he will initiate and monitor proper execution of adopted risk avoidance and containment measures, as well as expansion of the system. The objective is to heighten the awareness of everyone in the Company and to involve and commit them to implement the measures that have been adopted.
Risk reports are submitted to the Risk Committee, which comprises the Management Board, department heads and the risk coordinator, for information and decision. Known risks are categorized and assessed. This assessment is followed by a plan of action for minimizing risks. In the future, all department heads will be required to comment on risk development on a quarterly basis. The purpose of the risk inventory is to identify new and unknown risks early on.
Risks and action
World economic growth
Risk: As a globally operating enterprise, one major risk for Pfeiffer Vacuum is the development of the world economy. Declining world economic growth has a direct impact on our corporate success. This can result in lower sales and earnings.
Action: We have to respond to economic change with relatively swift cost-cutting measures. Cutting back on less urgent investments, making optimum use of existing resources and reducing overcapacities are several typical examples.
Market and competition
Risk: Loss of market share and name recognition.
Action: Ongoing customer contact and the market intimacy that this brings supplies us with important information about the needs of our customers. We utilize the information about technology needs that we gain from the marketplace to broaden our competitive edge and name recognition.
Value added and technology
Risk: Missing out on an innovation that is needed by the market, as well as a decline in the quality of our products and the resulting loss of market share to a substitute developed and marketed by a competitor.
Action: As a result of high barriers to market entry and our present market positioning, this risk is predictable. We have to sustain this good market positioning. Consequently, we continuously invest in the development of new products in order to be able to satisfy our customers’ needs. With these development investments, we will continue to combat the risk of tech-nology losses. As a manufacturer of quality high-tech products, it is especially important that we satisfy this quality standard. Our strict quality controls reduce the risk of quality shortcomings. Please also refer to the section entitled “Environment, Safety and Quality” in this connection.
Risk: Foreign exchange risks exist as a result of the high percentage of our sales that is accounted for by non-Germany business. This poses the risk of potentially negative influences on the percentage of our sales accounted for by the American and British markets, in particular.
Action: We use our foreign exchange management system to minimize this risk. We do not engage in any speculative transactions.
Risk: Production facility outages as well as our dependence on suppliers and the resulting potential for supply bottlenecks.
Action: We employ modern production machinery and qualified technicians to significantly reduce the risk of production facility outages. This reduces technically related downtimes to a low risk level. We primarily combat the risk of supply bottlenecks by continuously reviewing alternative suppliers. Further action to reduce these kinds of business risks con-sists of taking out suitable insurance coverage.
Loss of accounts receivable
Risk: Loss of accounts receivable from customers as a result of a insolvency.
Action: Because of the current economic situation and the risk of insolvencies this entails, we are increasingly focusing on this risk. We reduce the risk of accounts receivable losses with the aid of our rigorous system of accounts receivable management and by monitoring our customers’ payment patterns. is very limited, as none of them accounts for more than10% of our total sales.
Loss of qualified employees
Risk: As a high-tech manufacturer, we are dependent upon the high level of training and education of qualified employees.
Action: Training and educating young, qualified employees is a method of strategic risk minimization. To minimize operative risks, we provide continuing training and education for our employees and foster self-direction in order to create incentives and gain ideas from our people. An attrition rate of less than 2 %, which is clearly below the industry average, represents a positive signal for us.
Risk: Information technology risks in the form of data losses and system downtime.
Action: We minimize data losses by daily backups of our complete corporate data. Our corporate database, in particular, with which manufacturing operations, materials management, order handling, financial and cost accounting are handled, is subject to a high security standard. All files created by our employees within the server environment are also backed up on a daily basis. Our backup tapes are stored in secure locations that are protected against fire. The activities of our own support team reduce system downtimes to a low level.
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