Risk Management System

All group companies are integrated into GEA Group’s risk management system. Quarterly risk reports  and size-related ad hoc risk reports aim to ensure that segment and group management decision makers are informed promptly about material existing risks and potential risks affecting future development.

The basic principles of an orderly risk management system and the related workflows are documented in group-wide risk guidelines, which are broken down and structured in greater detail regularly by the segments to meet their specific requirements. These guidelines also document mandatory risk  reporting and management requirements. Compliance with these requirements is monitored regularly by the Internal Audit function.

Risk management instruments such as the Risk Assessment and Advisory Committees (RAACs) are supplemented by a reporting system encompassing evaluated risk reports, consolidated financial projections, monthly consolidated financial statements, and regular meetings between the Executive Board and the segment heads to enable the various risks to be identified and analyzed.

GEA Group’s risk management system is based on the management hierarchy. Risks are reported to the next highest management level using predefined thresholds.

The specific requirements of the group’s project business are addressed by risk boards at segment and group management level. Before a binding quotation is submitted or an agreement signed, the commercial and contractual terms of potential orders are examined in detail by specialists from various departments so that risks that cannot be controlled are avoided. The risk management system therefore already comes into play before risks arise, in the form of a critical examination of the opportunity and risk profile of quotations. No agreement may be signed if the profile is inappropriate.

The risk management system is not only designed to identify risks that endanger the group’s continued existence at an early stage, as required by law; it also captures all risks that might have a material adverse effect on the operating result of a segment or the group. Additional modules were added to GEA Group’s risk management system in fiscal year 2013 in order to systematically capture risks and opportunities not covered by the existing systems; these make it possible to assess risk on a holistic basis.

Information is gathered and consolidated in an iterative process across all organizational units in a “Risk & Chance Scorecard.” To identify risks that could endanger the continued existence of GEA Group as a going concern, all issues are assessed for their financial materiality (on a gross basis, i.e. excluding any risk-mitigating measures) and their probability of occurrence. In addition, the timing (less than or more than one year) of each risk is individually assessed.

The following criteria are used to determine materiality: 

Insignificant - Impact on financial and earnings position between EUR 0.25 - 2.5 million
Moderate - Impact on financial and earnings position between EUR 2.5 - 10 million
Considerable - Impact on financial and earnings position > EUR 10 million

This makes it possible to classify both risks and opportunities in accordance with their impact on GEA Group. Issues with short-term relevance that have a high (“H”) materiality and probability rating are initially classified as a significant risk or significant opportunity.

In addition, the GEA Demand Index (GDI) is used to collate estimates by GEA Group’s market experts of expected short- to medium-term market developments. The GDI makes it possible to obtain an early indication of positive or negative market developments in the industries and regions that are relevant for GEA Group.

The data gathered using the Risk & Chance Scorecard and the GDI is processed along with other internal and external information in a scenario and sensitivity analysis, which simulates the potential impact on the group’s liquidity).

Adequate provisions have been recognized for all identifiable risks arising from the group’s operating activities provided that the recognition criteria for liabilities have been met. The following section provides details of existing risks. Risks that are not yet known or currently regarded as insignificant may also have an adverse effect on business activities.