NITRÓGENO

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Management Report

Report on Expected Developments and Associated Material

Risks and Opportunities

Report on Risks and Opportunities

The following chart illustrates the risk management process within the OSRAM Licht Group:

Assessment of Risks and Opportunities

In the following sections the term “risk” is used instead of “opportunity and risk”. A distinction is made between risks and opportunities only where required. In order to determine which risks would appear most likely to jeopardize the con- tinuity of the OSRAM Licht Group’s business, the risks are assessed as part of the ERM process for their impact on our business objectives and their likelihood.

In accordance with our ERM approach, we use the net prin- ciple, in which risks are assessed in the context of existing measures such as internal controls or insurance. These meas- ures are included in the net assessment if they are already in effect. Measures that are planned or are in the process of being implemented do not reduce gross risk.

Based on a correlation of their likelihood and impact, risks are classified as “major,” “high,” “medium,” or “low”. Risks are generally not quantified in monetary terms, as the focus is more on the use of qualitative factors that affect our busi-

Risikomanagementprozess im OSRAM Licht-Konzern

Prüfungsausschuss

OSRAM Risk & Internal Control Committee (ORIC)

Business Units Regionen Zentralfunktionen OSRAM-Risiko-/Chancen-Register Business-Units- Risiko-/ Chancen-Register Regionen-Risiko-/Chancen-Register

EMEA APAC Americas

Zentralfunktionen- Risiko-/

Chancen-Register

Berichtsprozess Konsolidierung

Risk Management Process within the OSRAM Licht Group

Audit Committee

OSRAM Risk & Internal Control Committee (ORIC)

Business Units

Regions

Corporate Functions

OSRAM risk/opportunity register

Business units risk/opportunity register

Risk/opportunity register on a regional basis

EMEA APAC Americas

Corporate function risk/opportunity register

Reporting process Consolidation

ness activities to classify their impact, including failure to achieve business objectives, reputational damage, and their ability to tie up management resources. This could indi- rectly impact our net assets, financial position, and results of operations. Risks can be presented graphically using a heat map. The impact of the risks is plotted on the y-axis and their likelihood is plotted on the x-axis.

Responsibilities are assigned for all relevant risks, with the hierarchical level of responsibility depending on the signifi- cance of the respective risk. In a first step, assuming respon- sibility for a specific risk involves deciding on one of our general response strategies, or a combination of them. Our general response strategies with respect to risk are avoid- ance, transfer, reduction, or acceptance of the relevant risk. Our general response strategies with respect to opportuni- ties are complete, partial, or no realization. In a second step, responsibility for a risk also involves the development, ini- tiation, and monitoring of appropriate response measures corresponding to the chosen response strategy. These re- sponse measures have to be specifically tailored to allow for effective risk management. Accordingly, we have developed a variety of response measures for both risks and opportuni- ties. We have taken out appropriate levels of insurance against potential cases of damage and liability risks in order to reduce our exposure to such risks and to avoid or mini- mize possible losses. To oversee the ERM process and to further drive the integration and harmonization of existing control activities in line with legal and operational require- ments, the Managing Board has grouped responsibility for risk management and the internal control system in a cor- porate department, and has established the OSRAM Risk

Auswirkung des Risikos

Heatmap: Risikoklassifi zierung

kritisch erheblich moderat gering marginal Eintritts- wahrschein- lichkeit des Risikos un- wahr- schein- lich möglich wahr- scheinlich sehr wahr- schein lich fast sicher sehr hohes Risiko hohes Risiko mittleres Risiko geringes Risiko Impact

Heatmap: Risk Classifi cation

major signi fi cant moderate minor marginal Likelihood unlikely possible likely probable certain

major

high

medium

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and Internal Control Committee (ORIC). The ORIC is com- posed of the head of the responsible corporate department and the Managing Board as permanent members. The ma- terial consolidated risks and opportunities are reported to the Managing Board in the ORIC, which uses this information to evaluate the risk and opportunity situation across the Group.

Risks

Below, we describe the risks that could have particularly ad- verse effects on our business, and on our net assets, finan- cial position, and results of operations, or that are highly likely to occur. The following reported risks are classified as “major” or “high”. The order in which they are presented within the categories reflects the current estimate of OSRAM’s relative exposure and thus gives an indication of the current signifi- cance of these risks for OSRAM. The current estimate of the level of risk may change over time. At present, we do not expect to incur any risks that in isolation or in combination would appear to jeopardize the continuity of our business. The risks described for fiscal 2013 did not change signifi- cantly in terms of their identification and assessment. How- ever, the risks relating to the competitive environment and the adjustments to our industrial footprint have developed and are now referred to as “market dynamics and compe- titive environment”, and “adjustments to the organization and the industrial footprint”. Additionally, we have assessed regulatory risks as being more significant, and risks relating to the economic situation as less significant, than in the previous year.

Where it is not explicitly stated that a risk relates to an individual segment, the risks described concern the OSRAM Licht Group.

Business strategy risks Market developments

The lighting industry is facing a far-reaching technology shift toward semiconductor-based lighting. This shift is changing the market, which may have a material impact on our compet- itive position. The speed and extent of the transition to semi- conductor-based lighting are uncertain. Apart from OS, all segments are affected by these developments, particularly the CLB and LLS segments.

The shift could mean that in certain circumstances we may be unable to respond in good time to a sharper decline in the traditional market by introducing innovative LED products at the same rate. This applies in particular to markets where we wish to defend our leading market position based on tra-

ditional products. In addition, some of our established market access points may be replaced, impacting our competitive position.

We are systematically countering this risk through specific targets set as part of OSRAM Push OSRAM Push, page 48 ff., our Company-wide, comprehensive, continuous improve- ment program to adapt business processes, as well as distribution and manufacturing structures. We adequately addressed this risk in fiscal 2014 with the first phase of OSRAM Push. In fiscal 2014, we therefore initiated a second phase of OSRAM Push, comprising measures to be imple- mented affecting fiscal years 2015 to 2017.

Failure to implement the corresponding measures may have a clear adverse effect on our business and on our net assets, financial position, and results of operations.

Market dynamics and competitive environment

In the future, developments in the lighting industry could lead to consolidation and commoditization dynamics. Due to slower market growth and stronger competition, we see an increased risk of consolidation at the start and in the middle of the value chain (upstream/midstream), in particular. In the medium term there is also a risk that possibilities for manu- facturers to differentiate themselves on the basis of techno- logical expertise or brand value could diminish. As a result, we could see a situation where manufacturers of general lighting products are forced to differentiate themselves more on price than was previously the case.

As part of OSRAM Push, we regularly check whether we can offset price and inflation risks through productivity meas- ures, which we succeeded in doing in fiscal 2014 OSRAM Push, page 48 ff. and Results of Operations, page 59 ff.Building on this, we review the market for appropriate investments in endoge- nous and exogenous growth on an ongoing basis.

Failure to implement the corresponding measures may have a clear adverse effect on our business and on our net assets, financial position, and results of operations.

Adjustments to the organization and the industrial footprint

OSRAM is reacting to the stronger than anticipated momen- tum of the technology shift with measures aimed at making our processes more flexible and reducing our fixed cost base. To this end we launched the Phase II of OSRAM Push

OSRAM Push, page 48 ff.in the third quarter of 2014. By doing so, we are taking a holistic approach to ensuring that the Company is fit for the future, with a focus on LED technol-

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Management Report

Report on Expected Developments and Associated Material

Risks and Opportunities

Report on Risks and Opportunities

ogy. The risk here is that the resources affected will be tied up too much during implementation of the measures, thus compromising temporarily the operational performance of our business. In addition, there is a risk that the resolved measures may be implemented behind schedule.

To counter this risk, we closely monitor the progress of the OSRAM Push program implementation.

Failure to implement the corresponding measures may have a clear adverse effect on our business and on our net assets, financial position, and results of operations.

Economic situation

The cyclical nature of the lighting business and the changing general economic environment have resulted in significant volatility in demand for our products in the recent past and, therefore, in the development of our revenues and results of operations. This trend may continue in the future. Demand for our products is cyclical and the majority of our business is exposed to changes in the general economic environment. Our products serve applications in a very wide range of segments of the general lighting sector such as residential, office, hospitality, outdoor, architectural and in- dustrial lighting, the automotive sector, displays as well as the entertainment industry. Most of these are affected by changes in the economic environment relatively early in the economic cycle. The main exception is the luminaires business; this is more exposed to the construction industry, which is affected rather late in the economic cycle. Further- more, as our main markets are in Europe, the United States, and Asia, economic developments in these regions have the highest impact on our business activities. A sovereign default or the exit of an EU member state from the eurozone may also have material adverse effects on the global econ- omy and thus on OSRAM’s business. In addition, exchange rate fluctuations can have material adverse effects on our revenues and profits and may also affect our competitive position.

Declining demand in our major markets and resulting over- capacity, particularly of a temporary nature, in the area of LED manufacturing could result in us being unable to cover our fixed costs. This would increase the pressure on further restructuring measures.

Due to our cyclical business environment, we make con- scious investment decisions and carefully consider whether to make or buy. We also closely monitor the economic situation and have developed alternative courses of action

as part of the OSRAM Push program OSRAM Push, page 48 ff.

to ensure that we are able to react to a change in demand at all times.

Failure to implement the corresponding measures may have a clear adverse effect on our business and our net assets, financial position, and results of operations.

Price pressure

Prices for lighting products have historically been subject to price erosion. This trend could accelerate, both in traditional products, and in particular in relation to the LED business. If these price declines cannot be fully compensated by rising volumes of sold products, we will need to achieve productivity improvements and reduce our costs.

In this context, an efficient supply chain management will, among other things, be of an increasing importance. We reg- ularly review our structures, global and regional presence, and processes in order to identify potential cost savings and to adapt our global and regional reach accordingly. By doing so, we aim to achieve cost savings and operational improvements that will allow us to compensate for falling selling prices, rising raw materials and energy costs, and higher wages.

We have also initiated targeted projects to improve trans- action-based and value-based pricing in the area of sales and distribution.

Failure to implement the corresponding measures might have a clear adverse effect on our business and our net assets, financial position, and results of operations.

Adjustments to the business model

The transition toward semiconductor-based products in the lighting industry has significant effects on our competitive position and business model for the reasons explained below; in this context, it is important to distinguish between light- generating LED components and LED products resulting from the forward integration of LEDs (integration of light sources in lamps, luminaires, and/or lighting systems).

The greater longevity of LED products is expected to convert a previously stable replacement lighting business into a new installation business over the next several years. The trend toward more durable light sources will lead to lower replace- ment demand. Instead of supplying replacement light bulbs, the importance of LED products and complete lighting sys- tems, and of supplying the manufacturers of such systems on a new installation basis, is likely to increase. In turn, this

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requires us to align our R&D resources with this development. Moreover, we need to adapt and educate our sales force to develop the necessary technical know-how to be responsive to a new installation business model that will require in particular networking with architects, lighting advisors, and builder-owners. Since luminaires (with integrated light sour- ces) are becoming a more and more important part of both the lighting market and our product portfolio (as compared to the delivery and replacement of lamps), we will need to develop the expertise required to meet this expected shift in demand. If the realignment of the LS segment takes longer than expected, this may also lead to delays in adapting the business model.

We are countering this risk by developing and complying with a list of measures for the LS segment and strategically realigning the OSRAM Licht Group through the OSRAM Push program OSRAM Push, page 48 ff.

Failure to implement these measures may have an adverse effect on our business, financial position, and results of operations.

Operating risks

Shortage of qualified employees

Competition for qualified employees among companies that rely heavily on engineering and technology is intense. The loss of qualified employees or an inability to attract, retain and motivate highly skilled employees required for the operation, transition, and expansion of our business could limit our ability to conduct research successfully and to develop and sell marketable products. Competition for qualified personnel is particularly intense in the area of R&D, engineering, and the project business (qualified LED sales people). We could also lose senior managers who are important to our business and for the structural changes required.

Succession planning, identifying and developing talent, and dedicated employee development programs are therefore a global focus. Among other things, we have a concept for developing talent and our Open Mentoring program

Social Aspects, page 92 ff. We have also expanded our social

media presence and are using these channels to recruit new employees in order to sustainably secure our position as an attractive employer.

Failure to implement these measures may have a clear adverse effect on our business and on our net assets, financial position, and results of operations.

Launch of new products

The lighting industry is facing rapid changes in technology, frequent new product introductions, shorter and shorter product life cycles and changes in customer preferences, as well as increasing price competition. Our future business success therefore largely depends on our ability to offer innovative products tailored to our customers’ needs. We need to continuously optimize our product range in order to respond quickly to the latest technological developments. This requires, among other things, significant expertise, qualified employees, and considerable investment in R&D. The successful implementation and introduction of new products depends on various factors, such as:

–Developing technical innovations and protecting them using patents, so as to be able to manufacture commercially attractive products;

–Correctly assessing market demand and prevailing standards;

–“Phase in” and “phase out” processes that are optimally aligned with this;

–The acceptance of new technologies in the markets in which we operate; and

–The sale of sufficient volumes to cover fixed costs. If our competitors succeed in developing their current products and technologies more quickly or to sell them in greater numbers than ourselves, this could have negative implications for the products offered by us. The same is true if alternative products or technologies are launched on the market that are more attractively priced, of a higher quality, more functional, or more competitive for other reasons than ours.

To counter this risk, we apply an integrated product road- mapping process, which is based on our analysis of trends as well as of market and customer requirements. We also use a multi project management approach to launch prod- ucts in all segments.

Failure to implement these measures may have an adverse effect on our business and on our net assets, financial position, and results of operations.

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Management Report

Report on Expected Developments and Associated Material

Risks and Opportunities

Report on Risks and Opportunities

Legal and compliance risks Regulatory risks

Some of our production facilities and sites have been used for industrial purposes for decades and are contaminated in individual cases. Accordingly, we are exposed to environ- mental liability risk, general regulatory risk, and risk re- lated to changes in the regulatory framework. Known cases of contamination of land that was previously or is cur- rently owned by us concern Germany, the U.S.A., Russia, and Brazil, in particular. Even if we are not responsible for this contamination, we might have a statutory or con- tractual obligation to investigate it and potentially to clean it up.

We counter this risk by taking targeted measures in relation to the locations known to us, which are monitored in our Environmental Protection, Health and Safety (EHS) Manage- ment System. In addition, our selling process involves a conscious decision regarding the transfer of liability. Failure to implement these measures might have a clear adverse effect on our business, and on our net assets, financial position, and results of operations.

Legal proceedings

As an international technology company, we are exposed to various legal risks. These include contractual risk, liability risk in connection with non-contractual matters (e.g., advertising claims), and the risk of third parties

In document Autor: Juan Inostroza Fariña (página 65-74)