Our principal goal is to minimise financial risks and the cost of capital, whilst safeguarding the Group’s lasting financial stability and flexibility. In order to maintain its unrestricted access to the capital markets, the Group continues to seek a credit rating appropriate to the sector. We therefore monitor the development of our operating cash flows against adjusted debt particularly closely. Adjusted debt refers to the Group’s net debt, allowing for pension obligations that are not directly capital-backed and liabilities under operating leases.

Central cash and liquidity management

Cash and liquidity management is a central activity overseen by the Corporate Treasury on behalf of our subsidiaries, whose operations span the globe. More than 80% of the Group’s external revenue is consolidated in cash pools and used to balance internal liquidity needs. In countries where this practice is ruled out for legal reasons, internal and external borrowing and investment are arranged centrally by Corporate Treasury. In this context, we observe a balanced banking policy in order to avoid depending excessively on individual banks. Our subsidiaries’ intragroup revenue is also pooled and managed by the in-house bank with a view to avoiding external bank charges and margins (inter-company clearing). Payment transactions are made in accordance with uniform guidelines as well as by way of standardised processes and IT systems.

The Group’s unsecured committed credit lines total around €3.1 billion, of which €449 million had been used as at 31 December 2008. Our banking policy seeks to spread the volume of transactions widely and to foster long-term business relationships with financial institutions. Alongside the customary equal treatment clauses and termination rights, the relevant loan agreements do not contain any further undertakings concerning the Group’s financial indicators. Average drawings on credit lines came to only around 17% in 2008 (previous year: 4.4%).

Managing market price risks

The Group manages financial market risk by making use of both primary and derivative financial instruments. Interest rate risks are managed exclusively via interest rate swaps. Currency risks are hedged using forward transactions, cross-currency swaps and options. However, we pass on most of the risk arising from commodity fluctuations to our customers through operating measures. The parameters, responsibilities and controls governing the use of derivatives are established in internal guidelines.

Flexible and stable Group financing

The Group covers its financing requirements by maintaining a balanced ratio of equity to liabilities. This ensures our financial stability whilst providing adequate flexibility. Our most important source of funds is net cash from operating activities. We cover our borrowing requirements via a number of independent financing sources, including confirmed bilateral credit lines, bonds and structured financing transactions, and operating leases. Most of the borrowings are taken out centrally in order to leverage economies of scale and specialisation benefits and to minimise the cost of capital.

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