Group Management Report Corporate Governance Environment, Safety, and Corporate Social Responsibility Consolidated Financial Statements 61 pliers at an early stage and devise suitable measures. We take this knowledge into account when we arrange supply contracts. In addition, we take account of the volatility of raw-material prices in our customer relations. To be able to pass on price increases to the markets in the short term, we increase the flexibility of price mechanisms and price lock- up periods. Financial Market Risks Financial market risks primarily concern short-term and sig- nificant changes in exchange-rate relations and interest rates, as well as default risks and the covering of financial resource needs. Due to exchange-rate fluctuations, the translation of foreign currency values into the Group currency, the Euro, can have a negative effect on the Group’s sales and earnings performance (translation risks). Such negative effects can also result from business conducted in a foreign currency (transaction risks). We still categorize translation risk as being a medium risk, but with a higher relevance. Interest- rate changes influence financing costs. Defaults on trade accounts receivable or financial receivables can also have a negative effect on the Group’s earnings situation and its financial resources. If there is a lack of availability of financial resources for the implementation of acquisitions or major investment projects, we might not reach our strategic targets. We safeguard against material transaction risks by con- cluding forward foreign-exchange contracts in cases where we assume that the underlying business can be realized with a sufficient degree of certainty. The total amount expected is safeguarded in different tranches to offset shortterm exchange-rate fluctuations. We generally counter risks resulting from changes in interest rates by hedging inter- est rates over the corresponding term of the respective underlying transaction. More information on our evaluation and accounting procedures for hedges can be found in the Notes on page 123 ff. (note 27). structure. Due to our very diversified customer structure, however, these risks are limited. In addition, we cooperate closely with our core customers within the framework of our key account management. In the year under review, we did not make any fun- damental changes to our assessments of the probabilities of occurrence and loss potential from sales risks. Risks from Company Acquisitions and Investments Apart from operating growth, acquisitions play a key role for the implementation of the strategy for profitable growth at ALTANA. Depending on the size of the activities acquired, unsuccessful integration can place a burden on the Group’s earnings situation and limit its financial headroom. In addition, a business performance that is worse than what was expected when the acquisition was made can lead to impair- ments of assets with a negative impact on earnings. To minimize the effects of the risks from company acqui- sitions, we examine our acquisition targets systematically and comprehensively and analyze them in detail in a multi- stage approval process. The assessment of the risk of impairments of assets from acquisitions is lower than it was last year. This is due to a decrease in the probability of occurrence with the same potential damages. The impairment risk is therefore categorized now as being a medium risk. Procurement Risks Limited availability of certain raw materials or substantial raw- materials price increases that we cannot or can only par- tially pass on to the markets in the short term constitute the primary procurement risks. These can have a negative im- pact on the Group’s earnings situation. We continually analyze the situation on the raw-materials markets that are relevant for ALTANA. By doing so, we can identify price trends and structural shifts on the part of sup-
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