Risk management

---

Risk policy
The business policy of the K+S Group is geared towards generating reasonable returns that are as sustainable as possible and towards continually increasing enterprise value. As entrepreneurial action is inseparable from the assumption of reasonable risks, the focus of risk management is on a responsible approach to these risks. We define risks as possible negative deviations from a planned result. Systematic risk management aimed at identifying and controlling risks early on is an ongoing task for the Board of Executive Directors and the management of each field of responsibility.
The organisation of the K+S Group guarantees clear and unambiguous decision-making structures. It is laid down in the organisational principles of the K+S Group, which regulate in particular the interaction between holding units and the business segments within a matrix organisational structure and form the basis for respective responsibilities within the monitoring system. In addition, we have established a compliance system with a preventative character within the K+S Group.

Opportunity management
Risk and opportunity management are closely interlinked within the K+S Group. Chances are possible positive deviations from a planned result. We essentially derive our opportunity management from the goals and strategies of our business segments and ensure an appropriate relationship between opportunity and risk. Direct responsibility for the early and regular identification, analysis and management of opportunities rests with the operational management of the business segments and/or the central holding units, forming an integral part of the group-wide planning and management systems. We occupy ourselves intensively with detailed analyses of the market and the competition, market scenarios, relevant cost drivers and critical success factors, including those in the political environment in which it operates. This serves as the basis for identifying concrete potential opportunities that are specific to business segments and which are then discussed and agreed on within the framework of the goal-setting talks held between the Board of Executive Directors and the managers responsible for the business segments. Selected potential opportunities for the K+S Group are discussed in the forecast report.

Risk Management
Our business segments have different opportunity and risk profiles and to identify them in good time as well as to assess and limit them, we use uniform planning, management and control systems. The methods used extend from analyses of markets and competition, through close contacts with customers, suppliers and institutions, and to observing risk indicators in an economic and socio-political context. Risks are assessed on the basis of a potential likelihood of materialisation and on loss levels. The possible non-recurring or recurring impact on company objectives is processed in preparation for the adoption of decisions. A further building block of risk management is the devel-opment of countermeasures for alternative risk scenarios. We are thus able to counter-act risks in a systematic and methodical manner and to exploit opportunities consistently.
Given its overall responsibility for the K+S Group, the Board of Executive Directors has established a systematic and efficient risk management system by means of group-wide guidelines. Direct responsibility for early detection, analysis, control and communication rests with the operating management of the business segments and the central holding company units respectively. By means of goal-setting talks between the Board of Executive Directors and the managers responsible for the business segments as well as through regular reporting, the business segments provide information about changes in their individual risk situation. Only those risks are taken into consideration, whose potential likelihood of materialisation is 5 % or more and which, at the same time, exceed differentiated business segment-related potential losses. The risk profiles relate both to the current year and to medium-term planning for a total period of three years. Expected risks with a likelihood of materialisation of 50 % and more are taken account of in planning and projections in the form of a deduction from earnings. Risks at the group level are consolidated on a quarterly basis. These instruments enable the Board of Executive Directors to review, on a regular and timely basis, whether estimates and framework conditions have changed and which measures may have to be implemented under certain circumstances. Risks that arise in the short term are, if urgent, communicated directly to the Board of Executive Directors outside normal reporting channels. The Supervisory Board is also briefed on a timely basis and at regular intervals by the Board of Executive Directors. In accordance with a group-wide rule, transactions and measures of particular importance and scope require the approval of the Board of Executive Directors and, in special cases, of the Supervisory Board too.
In addition, a cross-segment task force and the internal audit department regularly inspect the functionality of the risk management system. Their findings are used to further improve risk early detection and control. The functionality and efficiency of our risk management system is regularly reviewed by the auditors. The existing system has proven its reliability and is suitable for the early detection of such developments that could jeopardise the continued existence of the company.

 

Source: Risk Report within the Financial Report 2007