Performance

The performance risks presented below can take a wide variety of forms. The elements of the GEA risk management system are designed to help identify emerging risks before they materialize, so that appropriate measures can be implemented on a case-by-case basis to avoid negative effects on the group’s financial position and results of operations. As a rule, potential business performance risks are minimized by avoiding significant dependencies and ensuring a balanced mix of fixed and flexible capacities. GEA Group’s sales markets have a diverse product and customer structure. This diversification moderates the impact on total demand of fluctuations in demand in specific submarkets. However, the food industry is the main focus of the business. A significant decline in demand for food and beverages would have a material impact on GEA’s financial position and results of operations. GEA considers the probability of a global decline in demand to be low. This risk is rated as medium overall.

A significant proportion of GEA’s business consists of projects that depend on the financing available to GEA’s customers. A general decline in demand, shifts in currency parities, or a credit squeeze could make it more difficult to implement such projects. For the same reason, existing orders could be deferred or even canceled. If such risks were to occur on a global level, they would have a material impact on GEA’s financial position and results of operations. The probability of such risks occurring globally is considered to be low. This risk is classified as medium overall due to GEA’s diversified positioning in particular. Although country-specific conflict situations that may result in risks to the group are monitored continuously as part of the risk management process, the potential risks arising from such situations are difficult to quantify. However, no material impact on the group’s results of operations is anticipated. This risk is rated as medium overall. On the sales side, future prices will depend to a considerable extent on general economic trends. Any fall in capacity utilization in the industry could also have a significant negative impact on price levels and therefore on the financial position and results of operations of GEA Group. Thanks to the group’s regional and industrial diversification, the probability of such a risk is considered to be low. This issue is rated as a medium risk overall. GEA Group processes a number of materials, such as stainless steel, copper, and aluminum. Purchase prices for these metals may fluctuate significantly depending on market conditions. Long-term supply agreements are entered into with selected suppliers in order to lock in the procurement prices used as the basis for costing orders. However, the potential risks arising from such situations are difficult to quantify. With respect to procurement, current expectations are that prices for key materials will not increase. This risk is rated as medium overall. Long-term engineering orders are a significant element of GEA Group’s business. Some of these contracts entail particular risks, as they involve assuming a significant portion of the risk associated with the project’s completion. In addition, they may provide for warranty obligations that remain in force for several years after the project’s acceptance. Technical problems, quality problems at subcontractors, and missed deadlines may lead to cost overruns. There is therefore an extensive risk management system in place at group management and segment level to closely monitor order-related risks. This comes into play before binding quotations are submitted. Adequate provisions have been recognized for all foreseeable risks in this area. This could give rise to both risks and opportunities in relation to the financial position and results of operations. As a whole, this issue is rated as a medium risk. GEA’s business processes are highly dependent on information technology. The failure or malfunction of critical systems could result in risks relating to confidentiality, availability, and integrity, and key business processes could be compromised. GEA protects its IT systems against unauthorized access to the extent that this is economically feasible. The relevant security systems are updated on an ongoing basis.

Furthermore, the Company sees risks in connection with macroeconomic trends. If a downturn in the economy leads to a reduction in order intake to below the level of the previous fiscal year, this could have a negative impact on earnings due to capacity underutilization and capacity adjustment measures. Thanks to the group’s regional and industry diversification, and the fact that it is structured for flexibility, the probability of this significant risk occurring is considered to be low. This issue is classified as a medium risk overall. As contractually agreed, defined risks relating to selected orders remained with the group following the sale of the former Lurgi and Lentjes divisions. The guarantee period for most of these Lentjes orders has already expired. The other orders have provisionally been handed over to the customers and are therefore under warranty. Under the final agreement entered into with the purchaser of Lurgi, the risks arising from the selected Lurgi orders have largely been eliminated for GEA Group. The remaining risks are rated as low overall. The sale of the GEA Heat Exchangers Segment resulted in risks in the form of financial obligations towards the purchaser. These relate to contractual warranties and indemnifications, as well as risk sharing for major projects. This issue is assessed as a medium risk overall, with a low probability of occurrence. Dedicated and qualified employees are a critical success factor for GEA Group. The group has various staff policy measures in place to counter the risk that it will be unable to fill vacant positions adequately or that it will lose skilled employees. The measures aim to position GEA as an attractive employer and foster employees’ long-term loyalty to the group. The probability of this significant risk occurring is considered to be low. This issue is rated as a medium risk overall.