As an international technology business, The Linde Group is exposed in the course of its global operations to a great variety of risks which are inextricably linked to entrepreneurial activity. Our strategy is therefore to limit any potential risks arising from our activities at an early stage. At the same time, we are keen to exploit any available opportunities in order to continue to achieve sustainable earnings-based growth. The risk management system of The Linde Group comprises many interconnected processes, the aim of which is to identify potential risks at an early stage, to assess them using specific criteria, to evaluate the extent and characteristics of the risks and to introduce appropriate precautionary and security measures. During the year, we continued to update our risk management systems so as to increase their efficacy and transparency.

Risk management: An integral part of our business processes
Risk management in The Linde Group is decentralised and directly geared to the operating structure of the Group. The diversity of business activities in the various divisions require differentiated methods for managing risks tailored to the needs of each segment. A streamlined central risk management team defines uniform standards and ensures that similar risk management processes are employed throughout the Group. We have appointed individual risk managers in each division, whose task is to identify and quantify the risks specific to that business and to devise appropriate measures to minimise them and therefore deal with the risks locally.

Regular reporting and direct notification of significant new risks give decision-makers up-to-date information
Our risk management system is integrated with our business processes as a result of the systematic recording, control and reduction of risks, and appropriate early warning systems which protect against potential risks.

To ensure the efficient capture and quantification of risks, our risk recording system is based on uniform Group guidelines. The risks in The Linde Group are analysed using a risk catalogue specific to the Group. The individual risk categories are directly derived from the critical success factors for the implementation of the corporate strategy and its objectives.

We record and analyse risk notifications using an Internet-based system. We brief the Executive Board on the current risk situation in a quarterly risk report. In this report, the risks are quantified and categorised according to the probability of their occurrence and the potential damage they might cause. The audit committee of the Supervisory Board is also kept abreast of the risk situation at regular intervals by the Audit Committee. If there is a significant change in the risk situation, we record major specific risks via an ad-hoc reporting system.

In 2006, we established a watch-list, an additional monitoring tool in our active risk management process. Every quarter, this watch-list is presented for discussion at a meeting of the Executive Board. It identifies companies where action may need to be taken, based on various criteria, such as negative equity, significant deterioration in earnings, rising debt or a capital increase in the past twelve months. A detailed analysis of the main parameters forms the basis for an assessment of business performance over time and compared with budget. Countermeasures can then be taken if required.

Risk management: A key management tool
The risk management philosophy forms an integral part of our business processes and consists not only of making opportunities and risks as transparent as possible, but also of devising procedures to minimise, transfer and avoid risks.

The risk management department in The Linde Group works closely with the insurance department to identify risks which could be insured against and to obtain the best possible insurance cover. Generally, we take out external insurance to cover risks which are significant in terms of the potential loss that might arise, but which are unlikely to occur. We do not usually insure against minor frequently-occurring losses, which therefore have to be borne by the individual operating units. This provides the operating units with an economic incentive to invest in appropriate precautionary measures.

The risk management system is also closely linked with our financial control processes. In the course of 2006 financial year, we continued to develop our internal reporting procedures. We implemented a consistent top-down monthly reporting system, which presents the main business parameters in a clear manner and uses a traffic-light system to pinpoint major changes in individual business units. At the same time, we succeeded in significantly accelerating our internal reporting processes, thus ensuring even more up-to-date monitoring of our business performance and of the associated risks.

At the recently-established regular business review meetings between management of the operating units and the Executive Board of the Group, the lively discussions focus on current and forecast business trends, as well as on the opportunities and risks arising in each division.

During the year, we also set up workshops in the operating units and in order to support the integration of BOC and Linde in the post-acquisition period. The aim of these workshops was to devise procedures to minimise risk and exploit opportunities.