Interest rate risk

voestalpine AG differentiates between cash flow risk (the risk that interest expenses or interest income will undergo a detrimental change) for variable-interest financial instruments and present value risk for fixed-interest financial instruments. The positions shown include all interest rate-sensitive financial instruments (loans, money market, issued and purchased securities).

The primary objective of interest rate management is to optimize interest expenses while taking the risk into consideration. voestalpine’s business profile permits an overweighting of floating-rate financing. Fixed interest rates are used to take advantage of extreme situations (cycle bottom).

The variable-interest positions on the liabilities side significantly exceed the positions on the assets side, so that a 1% increase in the money market rate increases the interest expense by EUR 11.6 million.

The weighted average interest rate for asset positions is 0.85% with a duration of 0.49 years (including money market investments) and 3.53% for liability positions with a duration of 0.92 years.

The present value risk determined using the Value-at-Risk calculation for March 31, 2010, is equal to EUR 8.3 million (2008/09: EUR 10.2 million) for positions on the assets side given a 1% change in the interest rate and EUR 64.2 million (2008/09: EUR 123.2 million) for positions on the liabilities side. Therefore, in the event of a 1% drop in the interest rate, voestalpine AG would have an imputed (unrecognized) net present value loss of EUR 55.9 million (2008/09: EUR 113.0 million).

The asset positions include EUR 413.1 million (previous year: EUR 252.9 million) of investments in the V47 and V54 funds of funds. 73.8% of the fund assets are invested in bonds and money market securities in euros or in cash in the three sub-funds V101, V102, and V103 and in three special funds as follows:

The fund of funds includes EUR 15.7 million in equities (3.8% of fund assets), which are divided among two global equity funds with different investment approaches.

For reasons of credit risk management, an amount of EUR 191.6 million has been invested in daily realizable, externally managed money market funds with an AAA rating as a replacement for money market investments.

Due to the general recovery of the financial markets, gains in the fund of funds for the business year were recorded:

Securities are measured at fair value. For the determination of the fair value, quoted prices (unadjusted) in active markets for identical assets or liabilities are used. Net profit amounting to EUR 19.4 million (2008/09: net losses EUR 24.1 million) are recognized at fair value through profit or loss using the fair value option.