Economic crisis
Risks associated with the current economic crisis
The current economic crisis requires special attention to a number of issues. The major risks and Kendrion’s response to those risks are listed below.
Customers
Customers are also undoubtedly detrimentally influenced by the economic crisis. The risk of irrecoverable debts is increasing. Kendrion has not applied for trade credit insurance, and restricts the risk of irrecoverable debts by devoting increased attention to:
- the customers’ financial strength;
- the amount of the credit limit granted to each customer;
- (non) delivery on exceeding the credit limit, or the aging of accounts receivable;
- the timely receipt of outstanding accounts receivable.
It should be noted that Kendrion is continually investigating whether the current economic crisis gives cause to the need to apply for trade credit insurance, whereby the premiums that would need to be paid and the cover are weighed against the risks.
Customers may endeavour to push their reduced profitability back up the supply chain. This can, in particular, occur in the operations of the Passenger Car Systems business unit (about 30% of Kendrion’s revenue) and the Commercial Vehicle Systems business unit. The question is then whether these business units can withstand the pressure and, if they are unable to do so, the extent to which the price pressure can be passed on to their suppliers. Within this context it should be noted that the current contraction of the car industry does not automatically imply the same degree of contraction in Kendrion’s operations: this is due to the number of new projects that will also start up in 2009.
The order intake is currently fluctuating tremendously, which complicates the production planning. Cost-reduction measures such as working time reduction in Germany are implemented on the basis of the best possible estimation of the order volume. As a consequence it is possible that specific cost-reduction measures cannot be implemented efficiently, either in whole or in part.
Suppliers
Suppliers may also be detrimentally influenced by the economic crisis. This gives rise to the risk of orders either no longer being delivered or not being delivered in time. Kendrion devotes increased attention to the financial strength of its suppliers, in particular the suppliers of critical raw materials and components. When there are doubts about the financial position of a supplier then the company endeavours, where possible, to approach alternative suppliers.
Kendrion may decide to maintain increased stock levels of critical raw materials and components to limit
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