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As a global company, Linde is exposed in the course of its business operations to a number of different risks, which are inextricably linked with entrepreneurial activity. We counter these risks by applying a comprehensive risk management system, which forms an integral part of our business processes and is a major element in corporate decision making. The aim of the system is to identify potential risks arising from our activities at an early stage and to monitor these risks and reduce them by introducing appropriate control measures. At the same time, the management of the Linde Group ensures that it exploits available business opportunities and continues to achieve success in the form of value-based growth.
The main components of the risk management system are the planning system, internal reporting procedures and an extensive risk reporting process.
The planning system makes it possible to identify and evaluate potential risks on the basis of strategic Group planning and medium-term financial planning. This ensures that account is taken early in the decision-making process of possible risks and control measures can be introduced in good time to manage those risks.
By using standardized internal reporting procedures throughout the Group, we ensure that we monitor and control economic risk arising from current business operations. Detailed information is thus provided on a monthly basis to the Executive Board and the various levels of management about the current economic situation and the extent to which targets have been met.
In addition, the Balanced Scorecard (Glossary) system, which has been gradually introduced in the Group since 2003, ensures that the critical success factors necessary to achieve our corporate goals are under constant review. We use this tool to identify any deviations from targets at an early stage and to take the appropriate countermeasures.
These measures are supplemented by market and competition analyses, which further increase risk transparency.
Given the different business activities in the Gas and Engineering and Material Handling business segments, risk profiles are developed which use various methods for dealing with specific risks tailored to the needs of each division.
The decentralized organization of our risk management system enables us to meet the individual requirements of each division. In each operating unit, there are risk managers, supported by risk officers from the various functional areas within the unit. This system ensures that risk management is fully integrated into all our business processes.
The function of the decentralized risk management system is to identify risks, to evaluate their extent and the probability of their occurrence, and to document and communicate this information in its quarterly risk reports.
The on-site risk managers are also responsible for developing and, if appropriate, introducing measures to avoid, reduce and safeguard against risks.
In addition to this process, we have set up a group-wide ad-hoc reporting system for risks which occur unexpectedly, so that we are able to react quickly to changing situations.
The decentralized risk managers are supported by the central Group risk management team, which both coordinates functions and processes and determines the standard framework and guidelines for the whole Group. The central department also establishes the consolidated risk position of the Linde Group, about which it keeps the Executive Board fully informed on a regular basis.
Risks are only covered on the insurance market if this seems reasonable in terms of economic benefits.
Linde ensures that it adopts and develops innovative approaches and ideas in its risk management by making regular improvements to the system and exchanging know-how with other companies. For example, we have developed and introduced our own computer program for risk reporting, which speeds up the reporting process and enhances our data analysis. We have also radically revised our risk guideline, which sets out the risk management principles which apply worldwide and the rules which apply to the recording, evaluation and reporting of risks.
Internal auditors perform regular reviews of the efficiency of operations and procedures within the risk management process and the reliability of the systems employed. In addition, the external auditor examines whether any developments which might endanger the existence of the Group as a going concern would be identified at an early stage by the risk management system and reports the findings of his examination to the Executive Board and Supervisory Board.
The principal risks which might significantly affect the business performance, net assets, financial position and results of operations of the Linde Group are set out below. These are not the only risks to which we are exposed. Risks of which we are not yet aware, or risks which we currently deem to be insignificant, might have an adverse effect on the Linde Group in different circumstances.
