THE NATURE OF OUR BUSINESS – STABLE GROWTH - Symrise

le, Symrise is continuously working to extend its international
supplier base, including supplies from Asian markets. The risks
that may occur in this context are described below.
At the same time, stricter legislation requirements may endanger
the sustainability of some vendors and narrow Symrise’s list of raw
material suppliers, forcing changes in sourcing activities and negatively
impacting the costs of goods. In addition to actively monitoring
the best sourcing opportunities, in particular cases Symrise
takes advantage of its expert knowledge to develop technical solutions
to find answers to the newest challenges in line with the
company’s objectives. In some cases solutions are developed in
cooperation with key suppliers.
Some raw materials, purchased in US dollar-related countries and
used in products sold in euro regions, might expose Symrise to a
currency risk if the US dollar were to gain in value.
To manage availability and the resulting price increase issues,
whenever possible we pass along those costs to the customer or
work with the research and development team to find more costeffective
substitutes.
The current economic and financial crisis basically also threatens
our suppliers’ business continuity. There is a risk to us of not receiving
deliveries, followed by cost issues in the event of multisourcing
and by potential business interruptions in the case of
single-sourcing. In order to mitigate these risks, credit rating is
now regularly included in the vendor selection procedure, similarly
in the credit assessment of customers. Furthermore, efforts to
find alternative vendors are being stepped up.
Moreover, for key raw materials we have completed acquisitions
that guarantee access to our own sources. Nevertheless, it is also
important to point out that in general and due to the broad raw
material spectrum procurement risks in our business are rather
leveraged.
Financial Risks
Symrise has exposure to the following issues in connection with
the use of its financial instruments:
› credit risks
› liquidity risks
› currency and interest risks
Credit risks
Credit risk is the risk of financial loss to the Group if a customer
or counterparty to a financial instrument fails to meet its contractual
obligations. This type of risk arises principally from Symrise’s
receivables from customers and investment securities.
Symrise’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. In 2008, the Executive
Board established a credit policy under which each new customer
is analyzed individually for its creditworthiness before the Group’s
standard payment and delivery terms and conditions are offered.
The Group establishes an allowance for impairment that represents
its estimate of losses incurred in respect of trade and other
receivables. The main components of this allowance are a specific
loss component that relates to individually significant exposures
and a collective loss component established for groups of similar
assets in respect of losses that have been incurred but not yet individually
identified.
Liquidity risks
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group’s reputation.
In the current economic environment companies face the possibility
of declining earnings. Lower earnings can lead to an increase
in net debt. In a worst-case scenario this could negatively impact
our ability to meet credit obligations as well as our ability to remain
within established covenant agreements with respect to our
equity/debt ratio. To counter this risk we carefully monitor our performance
and have developed appropriate contingency plans.
86 Annual Report 2008 Symrise AG