Annual Report

ASTARTA HOLDING N.V. Annual Report 2011• In an effort to minimize logistic and administrative expenses, the Group preferswholesale trade, especially in white sugar and grains. For this reason, it hasestablished reliable relations with an array of major customers, specifically, producersof confectionary and soft drinks. A loss of some large customers or the termination ofcontracts with them, as well as a decrease in sugar consumption by confectionary andsoft drink producers in Ukraine could affect the Group’s operations and financialresults.• Energy, fertilizers, fuel and labor cost make up a material share of the Group’soperating expenses. These expenses are expected to keep growing. While the Groupis working to cut energy and fuel consumption, reduce labor intensity, and optimizefertilizer application, growing prices for these and other inputs influence the Group’soperating and financial results.Liquidity RiskPlease refer to note 32, par. (e) of the Consolidated Financial StatementsPolitical Risk• The markets of agricultural products and agriculture as a whole depend on thecurrently prevailing policy. From time to time, the Government has imposedrestrictions on production and sales, as well as quotas, tariffs and other restrictivemechanisms aimed at protecting the national producers and consumers. Suchrestrictions may affect supply and prices on national, regional and world markets.Any change in Government resolutions or legislation applicable to the Group’s market,the markets on which it competes, or the markets of its competitors may affect itsbusiness, results of operations and financial conditions.Country Risk• Over the past years since gaining independence in 1991 Ukraine has madesignificant progress on its path to a market economy, as well as in political andjudicial reforms. Still the country needs to develop the appropriate legal andregulatory infrastructure that is critical for economic development and successfulsocial and economic reforms.Economic Risk• The Government of Ukraine provides financial support in various forms to nationalagricultural producers. If the Government decides to end subsidizing nationalagricultural producers, the move will have an adverse effect on the Group’s business,the results of operations and financial position.• Ukrainian laws regulating taxes are often changed and amended, which could createeither a friendly business environment or unusual difficulties for the business. Variousopinions are sometimes offered between and within government ministries andorganizations, including the tax authorities, with regard to the correct interpretation ofsuch legislation, raising doubts and creating grounds for conflicts. Tax returns andother relevant legal issues (such as customs and currency control) are subject toreview and study by numerous authorities legally empowered to impose substantialpenalties, fines, and interest.32