Risk inventory

Significant risks inventoried and identified by Gamma Holding are described below. The risks identified have been evaluated as effectively and thoroughly as possible, though there can always be risks that have not been (properly) identified, or that are considered to be of lesser importance at this time.

Risk Inventory

Kind of risk	Description	Measure(s) of control
Market risks	Impact of macro-economic developments	Gamma Holding is sensitive to macro-economic developments. The global recession, which started in the second half of 2008, put considerable pressure on the Company’s turnover. As a result of this, in combination with a relatively high fixed cost structure, Gamma Holding sustained heavy losses in 2008 and 2009. However, turnover picked up again in the year under review. In this respect, the business units benefited not only from favourable economic developments, particularly in Asia and America, but also managed to restrict the increase in fixed costs by making the cost structure more flexible. This will make them better able to cope with a drop in demand, also in the future.
	Competitive pressure	Some of the markets in which the business units operate are characterised by increasing competition from low-wage countries. Gamma Holding is trying to stay ahead of the competition by focusing strongly on optimising its business processes. It is also devoting more attention to strengthening market positions by expanding marketing & sales and intensifying product and process innovations. In the year under review concrete action was taken in this respect, for instance by expanding sales organisations, placing added emphasis on anchoring development activities and launching new products. Particularly in market segments with low margins, the business units must continuously adapt to changing market conditions in order to retain their attractive market positions and to achieve further growth. In recent years they have done this by relocating production and fabrication activities to low-wage countries. These two elements, the optimisation of business processes and the strengthening of market positions, create opportunities to enhance Gamma Holding’s distinctive identity as a niche player vis-à-vis its competitors. The aim is to deliver distinctive quality and service with production capacity that allows a flexible response to the needs and wishes of customers and the market.
	Fewer suppliers and fluctuating prices of raw materials	The business units of Gamma Holding manufacture high-quality products for specific applications, which must meet the stringent requirements of customers and end-users. Consequently, the raw materials that are used for the products must comply with strict specifications. However, the chemicals industry, which supplies such raw materials, is made up of a limited number of players in a market that is in a constant state of flux of consolidation and disposal. In order to retain access to these raw materials with the right specifications, the business units are continually strengthening their ties with their suppliers. They are also constantly on the look-out for new suppliers in emerging markets who, after a thorough testing period, can supply such raw materials. With this strategy, Gamma Holding is striving to reduce its dependence on its suppliers. In 2010, Gamma Holding again had to contend with fluctuating energy and raw material prices. In order to minimise the effects of this, the company is constantly looking for ways to use these resources more effectively and more efficiently. To this end it has made investments and set up projects to promote energy saving.
	Political and economic instability	New growth markets not only present opportunities, but also involve risks. One of these is the political and economic instability of the countries in which the business units conduct operations. A sudden change of government or a lengthy political crisis can affect the economy of a country. This can hamper business activity and thus impact Gamma Holding’s profitability. Gamma Holding has made the strategic choice to shift production to low-wage countries. Therefore, each decision to relocate production is preceded by a risk analysis, which identifies not just political risks, but geographical ones too, and weighs them up against the total risk profile of the group.
Operational risks	Fire and business damage	On behalf of the operating companies, Gamma Holding has drafted a normative set of requirements for the implementation of measures in the field of fire and business damage. A central Technical Risk Manager assesses, on location, the risk profile of the companies and advises the management and the Executive Board on technical and organisational improvements. The policy formulated and the improvements implemented by the operating companies led in the year under review to an improvement in the risk profile and thus to lower premiums for the group. Increasingly, production and fabrication locations are being combined. This leads to significant efficiency improvements, but at the same time reduces the number of alternatives to transfer similar types of production in an emergency. Accordingly, in order to minimise process disruption, the entire business process has a high level of technical security. Moreover, Gamma Holding is constantly looking for alternative facilities to which it can turn, both inside and outside the group.
	Management risks	Gamma Holding attaches great importance to well-balanced and effective management teams within all its operating companies. A shortage of personnel with the right competences at the right place could lead to a decline in Gamma Holding’s performance and to the company quickly falling behind the competition. Another risk is the dependence on key employees and the safeguarding of know-how. In this respect, human resource management will be strengthened within virtually all business units, and the Executive Board will become more involved in the composition of the respective management teams.
	Increasing environmental regulation	Throughout the world Gamma Holding is increasingly being confronted with new environmental legislation and regulations. Furthermore, the use of certain raw materials which are essential for the production process, is being questioned as a result of, among other things, REACH, the European regulations governing chemicals. On the basis of this, a number of suppliers are simplifying their product offerings, which can lead to changes in specifications for raw materials. In this context, the business units – in close consultation with the respective raw-material suppliers – are conducting additional acceptance tests and analyses in order to rule out the possibility of specification changes that could have an adverse effect on its products. In addition, the business units, as responsible corporate citizens, are constantly seeking ways to reduce the amount of environmentally harmful raw materials used in the production process.
Financial risks	Factors	The business units’ activities expose them to a variety of financial riisk: foreign exchange, interest, credit and liquidity risk. These risks are described in the financial statements of this Annual Report. Gamma Holding’s financial risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Gamma Holding’s financial performance. Gamma Holding uses derivative financial instruments to hedge certain risk exposures. Financial risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Executive Board. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the subsidiaries. The Executive Board provides written principles for financial risk management, containing policies covering specific areas such as foreign exchange and interest risk, use of derivative and non-derivative financial instruments, and investing excess liquidity. The Executive Board reviews the execution of this policy each quarter.
Financial risks	Financing	In the past two years the balance sheet position of Gamma Holding was weak. The Company had to contend with declining turnover and a high level of debt. As a result, it had to renew its financing under difficult circumstances. In 2010, however, results improved and the debt was greatly reduced thanks to the proceeds from the sale of Vlisco Group. This improved Gamma Holding’s financial position and meant the Company was better placed to negotiate a renewal of the financing agreement which ran to mid-July 2011. On 24 November 2010 agreement was reached with ABN AMRO, ING and Rabobank on improved financing facilities for the Company up to March 2014. In addition, the banks also offered the option of extending the financing, with their consent, by up to two periods of one year, to March 2015 and March 2016 respectively.