Group Management Report Products Safety and Health Environment Human Resources Social Commitment Consolidated Financial Statements 75
To minimize the effects of the risks from business combinations,
we examine our acquisition targets systematically
and comprehensively and analyze them in detail in a multistage
approval process.
We assess the risk of impairments of assets from acquisitions,
which we classify as a medium risk, as being higher
than in the previous year. In the past year, the ongoing weak
economic situation in the industrial sector led to business
developments below expectations, which inevitably leads to
an increase in impairment risks.
Procurement Risks
Limited availability of certain raw materials or substantial
raw-materials price increases that we cannot or can only
partially pass on to the markets in the short term constitute
the primary procurement risks. These can have a negative
impact 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 suppliers 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-materials prices in our customer relations. To be able
to pass on price increases to the markets in the short term,
we use the flexibility of price mechanisms and price lockup
periods.
The group of procurement risks is still classified as
medium compared to the previous year. However, due to a
lower probability of occurrence and slightly lower losses,
this risk decreased slightly in the past fiscal year.
Financial Market Risks
Financial market risks primarily concern short-term and significant
changes in exchange-rate relations and interest
Sales Risks
Sales risks result mainly from intensified competition or shifts
in customer structure. They include sales risks for individu-
al products or product groups due to specific demand trends.
This can lead to decreasing sales revenues, which can
be caused by declining sales volumes or falling prices. Since
in many cases we cannot adjust the cost structure in the
short term, this can lead to a drop in profitability.
We counter sales risks by continually optimizing our
product and service portfolio, above all on the basis of our
innovative ability. In the process, it is decisive that we cooperate
closely with our customers at an early stage of development
work to adapt to market needs. With our innovation
strategy, we can counter increased competition in our
markets.
A loss of, mergers of, or backward integration of customers
can lead to major changes in the customer 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.
The group of sales risks is still assessed as being “medium.”
In the year under review, we only slightly changed
our assessment of the probability of occurrence and loss potential
from sales risks.
Risks from Business Combinations and Investments
Apart from operating growth, acquisitions of companies,
business activities, and individual technologies play a key
role for the implementation of the strategy for profitable
growth at ALTANA. Depending on the size of the activities acquired,
inadequate 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 impairments
of assets with a negative impact on earnings.