Annual Report 2010 - CMVM

Corporate Governance Report 2010The TEIXEIRA DUARTE Group might, in the future, be part of a number of disputes related to its activity, including those where the sentencehas been favourable, totally or partially, and which might be subject to appeal or action for annulment by the counterparties under the termsof the applicable procedural rules and until the reading of the final judgement of these same sentences. The TEIXEIRA DUARTE Group cannotguarantee that it will win any lawsuits relative to its activities and a negative decision in this area might have an adverse effect of significanceto the activity, financial situation and net income of the TEIXEIRA DUARTE Group.The activities of TD,SA require investments. The Group finances part of these investments through the cash flow generated by its operatingactivities. However, TD,SA and its subsidiaries finance most of their investments through external sources, including bank loans and offers incapital markets.The TEIXEIRA DUARTE Group is exposed to a series of risks, such as liquidity risks, interest rate risks and exchange rate risks, amongst others,and in the event of exceptionally adverse scenarios, the policies and procedures used by TD,SA to identify, monitor and manage risks mightnot prove to be totally effective.As is the case of any other economic group integrated in a competitive environment, the TEIXEIRA DUARTE Group is also subject to risksrelated to liquidity. The Group believes that it is suitably equipped to exercise effective control of the risks of its activity, that the actiondeveloped by the management is effective, based on information provided by the Consolidation of Accounts and Internal Audit Services andby the Central Department for Finance and Accounts which, under the direct supervision of a Director responsible for this area, is speciallycommitted to controlling the liquidity of the TEIXEIRA DUARTE Group.TD,SA manages the Group's liquidity risks in two ways: ensuring that the Group's financial debt has a high component of medium and longterm maturities suitable to the expected capacity of generation of funds and the use of credit facilities, available in various cases in the formof current account credit lines.During its normal business, the Group is subject to certain operating risks, including interruption or delays in the provision of services,frauds, omissions, errors and delays in the implementation of requirements for risk management. These risks are monitored by the Group inan ongoing manner through administrative and information systems, amongst others, with some of the operating risks being covered byinsurance policies.The operations developed by the TEIXEIRA DUARTE Group are dependent on computer processing. The computer processing involves the maintenanceof records, financial reporting and other systems, including systems for the monitoring and control of the different operations of theGroup, in particular in human resources management, accounts, logistics, administration and storage. Notwithstanding the assessment whichhas been made of the computer systems and the belief that their capacities are appropriate, it is impossible to guarantee potential investorsthat all the problems related to the information technology systems will be fully identified and corrected in due time, nor systematic successin the implementation of technological improvements.The cost of the vast majority of the financial debt incurred by the TEIXEIRA DUARTE Group is indexed to variable reference rates, whereby TD,SAis, through this means, exposed to interest rate risk.However, in order to manage these variations, the financial area of the TEIXEIRA DUARTE Group permanently follows market development,and is able to use financial instruments to mitigate the effects of interest rate volatility. Such instruments are contracted by considering therisks affecting the assets and liabilities and after checking which of the instruments available on the market are the most appropriate to coverthose risks. These operations are permanently monitored, particularly through the analysis of various indicators regarding these instruments,in particular the evolution of their market value and sensitivity of forecast cash flows and of the actual market value to changes in key variables88