ANNUAL REPORT 2011 A.S. CRÉATION TAPETEN AG

product for PVC, which would result in a
permanent competitive advantage for that
competitor. To minimise this risk, A.S. Création
is constantly looking at ways of processing
substitute products in its existing production
facilities.
In view of the special market conditions, a
potential risk exists with regard to the company’s
procurement activities. For A.S. Création
as a customer, there are only few suppliers in
these markets, and the quantities purchased
by the wallpaper industry in general and
A.S. Création in particular are relatively small
from the suppliers’ viewpoint. In the event of
rising raw materials prices, A.S. Création therefore
has only limited negotiating clout and
few alternatives to choose from. The strategy
pursued by A.S. Création aims to prevent
long-term pressure on margins with the help
of an innovation-driven product policy. However,
this strategy entails the risk that price
increases on the procurement side can be passed
on to customers only with a certain delay.
Fluctuations in the gross profit margin in individual
fiscal years can therefore not be ruled
out. The long-term analysis shows that these
fluctuations stayed within a narrow bandwidth
of ± 2.5 percentage points around the 50%
mark in the period from 1997 to 2011. 2007,
2008 and 2011 were the only fiscal years in
which the company was unable to maintain
the gross profit margin within this bandwidth
due to the “explosion” in commodity and energy
prices. At 45.7% (2007), 44.9% (2008) and
45.8% (2011), the gross profit margin stood
at a very low level. In spite of these adverse
impacts, A.S. Création still generated positive
results and sufficient cash flows to finance the
regular capital expenditures also in these years.
This is why the Managing Board of A.S. Création
sees no risks arising from procurement prices
that could jeopardise the company’s continued
existence.
Another potential risk on the procurement side
relates to the availability of raw materials or
intermediate products of adequate quality. Due
to the sharp rise in global demand for raw materials,
in conjunction with the concentration
among the suppliers providing the raw materials
and intermediate products required by
A.S. Création, the procurement risk increased
in the past years. Should A.S. Création be unable
to obtain the required quantities of a raw
material or an intermediate product due to
a general increase in demand or the loss of
a major supplier, this may lead to a temporary
production outage. With a view to mitigating
this risk, A.S. Création analyses and tests the
quality and efficiency of new suppliers. This
process has already made the supplier structure
more international - a trend which the Managing
Board expects to continue. In view of the higher
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