Siemens 2007 Annual Report Download - page 181

Management’s discussion and analysis 181
Management’s discussion and analysis
Customer ratings, analyzed and defi ned by a designated SFS department, and
individual customer limits are based on generally accepted rating methodologies,
the input from external rating agencies and Siemens default experiences. Such
ratings are processed by internal risk assessment specialists. Ratings and credit
limits are carefully considered in determining the conditions under which direct
or indirect fi nancing will be offered to customers by the operating units.
Credit risk is recorded and monitored on an ongoing basis applying different
approaches dependent on the underlying product. Central systems are used for
leasing business, factoring, monitoring of operating counterparty risk, real-time
monitoring of treasury counterparty risk, as are a number of decentralized tools
for management of individual credit risks within the operating units. A central IT
application processes data from the operating units together with rating and
default information and calculates an estimate which may be used as a basis for
individual bad debt provisions. Apart from this automated process, individual
management judgment is applied, in particular to incorporate the latest develop-
ments and qualitative information.
To mitigate credit risk, Corporate Treasury has developed a guideline under
which operating units may sell portions of their receivable portfolio on a non-
recourse basis, either directly to SFS or to external parties. Receivable sales to
external parties are generally only performed for customers with a credit rating
below investment grade or for long-term projects with a fi nancing component.
Beginning in fi scal 2008, Siemens will change its receivable management guide-
lines.
SFS uses credit default swaps, classifi ed as derivatives, to protect from credit
risks stemming from its receivables purchase business. In respect of fi nancial
assets that are not protected through the use of credit default swaps the maximum
exposure to credit risk, without taking account of any collateral, is represented by
their carrying amount. Credit risks arising from credit guarantees are described
in Note 27. After consideration of credit default swap derivatives there were no sig-
nifi cant concentrations of credit risk as of September 30, 2007.
Concerning trade receivables and other receivables, as well as other loans or
receivables included in Other fi nancial assets that are neither impaired nor past
due, there were no indications as of September 30, 2007, that defaults in payment
obligations will occur. For further information regarding the concept for the
determination of allowances on receivables see “Notes to Consolidated Financial
Statements.”
Liquidity risk
Our Corporate Treasury is responsible for the fi nancing of the Company and our
Groups. A negative development in the capital markets increases our cost of capi-
tal and limits our fi nancing fl exibility. For example, the recent development in the
subprime mortgage market in the U.S. has had a global impact on the capital mar-
kets. Such developments could limit our possibilities of debt fi nancial instru-
ments fi nancing.