Siemens 2007 Annual Report Download - page 182

182 Management’s discussion and analysis
Our fi nancial condition, results of operations and cash fl ows are infl uenced sig-
nifi cantly by the actual and expected performance of the operating Groups, as well
as the Company’s portfolio measures. An actual or expected negative development
of our results of operations or cash fl ows or an increase in our net debt position
may result in the deterioration of our credit rating. Downgrades by rating agencies
may increase our cost of capital and could negatively affect our businesses.
Market risk
Market fl uctuations may result in signifi cant cash-fl ow and profi t volatility risk for
Siemens. Our worldwide operating business as well as our investment and fi nanc-
ing activities are affected by changes in foreign exchange rates, interest rates and
equity prices. To optimize the allocation of the fi nancial resources across the
Groups, as well as to secure an optimal return for our shareholders, we identify,
analyze and proactively manage the associated fi nancial market risks. We seek to
manage and control these risks primarily through our regular operating and
fi nancing activities, and when we deem it appropriate, we use derivative instru-
ments.
Management of fi nancial market risk is a key priority for Siemens’ Managing
Board. As a member of this Board, the Chief Financial Offi cer covers the specifi c
responsibility for this part of the overall risk management system. At the highest
level, the Managing Board retains ultimate accountability. For practical business
purposes, the Managing Board delegates responsibilities to central functions and
to the Groups. SFS holds a minor trading portfolio which is subject to tight limits.
As of September 30, 2007 it has a value-at-risk close to zero.
Within the various methodologies to analyze and manage risk, we have imple-
mented a system based on “sensitivity analysis.” This tool enables the risk manag-
ers to identify the risk position of the entities. Sensitivity analysis provides an
approximate quantifi cation of our exposure in the event that certain specifi ed
parameters were to be met under a specifi c set of assumptions. The risk estimates
provided here assume:
¢ 20% decrease in equity prices of all investments traded in an active market,
which are classifi ed as current available-for-sale fi nancial assets;
¢ simultaneous, parallel foreign exchange rates shift in which the euro appreciates
against all currencies by 10%;
¢ parallel shift of 100 basis points of the interest rate yield curves in all currencies.
The potential economic impact, due to these assumptions, is based on the occur-
rence of adverse market conditions and refl ects estimated changes resulting from
our sensitivity analysis. Actual results that are included in our statement of
income may differ materially from these estimates due to actual developments in
the global fi nancial market.
Any market sensitive instruments, including equity and interest bearing
investments, that our pension plans hold are not included in the following quanti-
tative and qualitative disclosure. For additional information, see “Notes to Consoli-
dated Financial Statements.”