Expected Developments

Future Orientation of the Group

We do not plan on making any fundamental changes to the Group’s strategy or organizational structure in the next two years. The focus on specialty markets and the offer of innovative chemical solutions based on our customers’ requirements will continue to drive our business development.

We do not expect our entry into new market segments or application areas to lead to any significant changes in our sales structure in the medium term. We also expect the balanced regional sales distribution to basically remain stable.

Acquisitions, however, could lead to changes in our sales and market structures. Bolt-on acquisitions and particularly the integration of a new business division could result in a shift.

In the future, the area of occupational safety and the focus on environmentally compatible management will continue to result in ambitious targets that will impact the ALTANA Group’s strategic orientation.

Economic and Industry Outlook

For 2023, ALTANA continues to expect restrained global economic growth. The external influencing factors that already led to a clouding of the markets in 2022 are expected to continue to impair economic development. An end to the war against Ukraine is currently not in sight. Although global inflation rates should weaken slightly, they will remain at a high level compared with previous years. Price volatility in the energy sector stabilized at the end of 2022. However, it is difficult to estimate how price developments and the natural gas supply situation – especially in Europe – will evolve up to next winter. The International Monetary Fund (IMF) expects lower growth in global economic output of 2.9 % in 2023 compared to 3.4 % in 2022.

Economic growth is expected to be weaker in the industrialized nations than in the emerging and developing countries. The IMF expects the industrialized nations as a whole to grow by 1.2 % in 2023 (previous year: 2.7 %), a trend that is evident in all economies, albeit with varying degrees of intensity. In the United States, growth of just 1.4 % is forecast for 2023, following 2.0 % growth in the previous year. In the Eurozone, the IMF expects growth of only 0.7 % in 2023, compared with 3.5 % in 2022. For Germany, the IMF no longer expects any significant growth in 2023 (0.1 %) after a low growth rate of 1.9 % in 2022. While most industrialized nations performed better in 2022 than the IMF had anticipated in October, economic growth is expected to be lower in 2023. Although inflation is expected to ease slightly, the effects of the related monetary policy measures could have a further, more pronounced negative impact on demand in 2023.

According to the IMF forecast, growth in the emerging markets will total 4.0 % in 2023 (previous year: 3.9 %), thus exceeding the global average. The picture continues to vary in relation to individual economies. Based on the IMF’s forecast for 2023, China will no longer be at the top of the region’s economies. After growing by only 3.0 % in 2022, it is forecast to expand by 5.2 % in 2023. The easing policy regarding coronavirus measures is expected to have a positive impact on economic performance. Growth in India is expected to remain dynamic. Although the forecast growth rate of 6.1 % for 2023 is slightly lower than that of the previous year (6.8 %), it is still above average. At 1.8 %, the Latin American economies as a whole are forecast to post below-average growth compared with other emerging markets. Brazil, which performed far better than expected with growth of 3.1 % in the previous year, is expected to grow at a slightly lower rate than the other countries in this region, at only 1.2 %. Overall, inflation is expected to ease in Latin America, but at the same time demand is expected to decline.

The IMF sees numerous macroeconomic risks for 2023 that could lead to a slowdown in growth. Above all, there is the risk of an escalation of the war against Ukraine, which could further exacerbate the situation on the energy market, especially for Europe, and also drive up food prices further worldwide and thus increase inflation. A possible political bloc formation as a result of the war against Ukraine entails additional geopolitical risks that could lead to a further restriction of international trade relations. Risks due to climate change are being relegated somewhat to the background as a result of the current geopolitical situation, but have lost none of their relevance. Major natural disasters are becoming more likely and – as the spectrum of extreme weather events on all continents showed once again in 2022 – could threaten all economies.

For the chemical sector, growth in 2023 is expected to be at a similar level to the forecast overall economic development. The American Chemistry Council (ACC) expects global chemical production to increase by 2.9 % in 2023, following growth of 2.0 % in the previous fiscal year. Owing to the effects of still high inflation, higher interest rates, and a weakening of exports as a result of the strong dollar, growth of only 1.4 % is expected for North America in the current fiscal year. Moderate growth in the low single digits is forecast for other regions, such as Asia at 4.1 % and South America at 3.4 %. According to the ACC, the markets of Western Europe, which have been severely affected by the consequences of the war against Ukraine, especially in the energy sector, will grow slightly again in 2023 (0.8 %) after an expected decline in chemical production last year (- 3.2 %).

On the basis of the economic and industry-specific framework conditions, we assume that general demand in the markets relevant for ALTANA will be slightly positive, although there will be regional and market-specific differences. The markets that we do not supply with our products due to the war against Ukraine are an exception. The extent to which changes in storage levels along the value chain will influence the demand for our divisions’ products largely depends on the expected short- to medium-term development. Stock-level changes can lead to significant effects.

The development of crude-oil prices cannot be predicted reliably. After the enormous price increase at the beginning of the war against Ukraine until mid-2022, which weakened again somewhat at the end of the year, we assume that the price will remain at a high level in 2023 and that there will be no significant price reductions. The availability, pricing, and consumption volume of chemical products are subject – to varying degrees – to the influence of the crude oil market. In addition, the expectations of market participants with regard to the future development of the oil price can cause significant changes in inventory levels along the entire value chain of the chemical industry.

As in previous years, in 2023 the exchange-rate relations that are significant for ALTANA may show pronounced volatilities. In addition to the development of regional interest rates and economic performance, political influence can also be decisive for exchange-rate movements. Concrete risks, as well as opportunities, can result from a deviation of the actual exchange-rate development from our planning assumptions.

Expected Earnings, Asset, and Financial Situation

Expected Sales and Earnings Performance
On the basis of the expected moderate growth of the global economy, we anticipate a further positive development in demand for our products and services in the 2023 fiscal year. Operating sales growth, that is sales growth adjusted for exchange-rate and acquisition effects, is expected to be in the mid-single-digit percentage range. Growth should be driven by an increase in sales volumes as well as positive price / mix effects.

As we expect slightly negative year-on-year exchange-rate effects in 2023, the nominal increase in sales is expected to be below the level of the operating increase. Effects from acquisitions were not taken into account in determining the forecast growth rate for the current year 2023. In operational terms, the divisions’ sales should develop within the same growth range as Group sales.

We assume that there will be no significant shifts in cost ratios in relation to sales for the main functional cost variables. We forecast a slight decrease in the cost of materials ratio compared to the past fiscal year, which will remain at a high level.

In the case of human resources costs and certain other cost items, we are planning a relative increase for 2023 that overall will be slightly higher than the level of sales growth. The main reasons for this are the continued inflation-related cost increases and pay rises for personnel, but also costs for regional expansions and for the further development of the ERP systems.

The EBITDA margin in 2023 should be above the previous year’s level, but still below our strategic target range of 18 % to 20 % due to the inflationary effects of previous years on the sales level. Absolute EBITDA is expected to increase in the upper single-digit percentage range compared with the prior-year figure.

After 2023, we expect the growth momentum for Group sales to be in the mid-single-digit range, in line with our strategic targets, and profitability to move further toward our target range.

Expected Asset and Financial Situation
Overall, there should be no significant shifts in the balance sheet structure in 2023. The level of our investments in property, plant and equipment and intangible assets should remain within our long-term target range of 5 % to 6 % of sales over the next two years. The absolute values of net working capital are expected to develop in line with the general business performance, although our aim is to reduce the relative level slightly compared with the end of 2022.

Based on the expected business development, we will continue to generate a clearly positive cash flow from operating activities in the coming years, which should be higher than in the previous year. We will use the cash inflow primarily to finance investments and further acquisitions beneficial to the development of the ALTANA Group.

We expect a significant increase in the key figures of value management compared with the past fiscal year. This will mainly result from an increase in the underlying profits compared to the prior year. We expect a corresponding increase for the relative and absolute ALTANA Value Added (AVA) and the return on capital employed (ROCE).

In 2022, the method used to calculate AVA was subject to a review with regard to the composition of capital employed and the calculation of operating income. Essentially, the longstanding practice of including historical costs of acquisitions in intangible assets and the associated adjustment of depreciation and amortization in earnings has been discontinued. Instead of historical acquisition costs, the corresponding book values will be used in the future. The new calculation methodology, which enables a more transparent determination and better management of the operating units, will be applied starting in 2023.

Expected Development in the Area of Occupational Safety and the Environment
In the area of occupational safety, we set ourselves the following targets for 2023 for the three work accident indicators: WAI 1: 2.3; WAI 2: 1.5, and WAI 3: 27.0.

The target for the specific energy parameter in 2023 is 1.16 MWh / t, following an actual value of 1.20 MWh / t in the previous fiscal year. In subsequent years, further reductions in specific energy consumption in the order of 2 % per year are sought.

Risks

Management and control of the ALTANA Group are geared to the strategy that has been defined and the target levels derived from it. Due to changes in the economic environment or internal and external factors of influence, it might not be possible to implement the strategy successfully or to achieve targets in the planned time frame or to the planned extent. To be optimally prepared for such situations, ALTANA systematically identifies, evaluates, and considers risks within the framework of decision-making processes.

To anchor our risk policy at all decision-making levels, we established a Group-wide risk management system that brings together various information, communications, and monitoring systems. Core elements of our risk management include strategic corporate planning, internal reporting, our internal control system, compliance organization, and risk management in the strict sense.

Our strategic corporate planning is closely tied to our medium- to long-term financial planning. The extent of the fulfillment of our targets is examined in monthly reports on the company’s business performance and in our short-term financial planning. Apart from an analysis of the current business situation, in these reports and our planning our expectations for the current fiscal year are discussed extensively at the divisional level on a regular basis. As a result, deviations from planned developments can be recognized and countermeasures introduced if necessary.

Our internal control system defines organizational and procedural requirements that serve to prevent damage to the company. In connection with our established compliance organization, it aims to prevent possible violations of guidelines and laws on the part of employees.

At ALTANA, risk management in the strict sense is viewed as the systematic compilation, evaluation, documentation, communication, and, if not already in place, derivation of measures regarding the relevant risks as well as the determination and assessment of risk-bearing capacity. Thus it is an essential component of the company’s system for early risk recognition in accordance with section 91 (2) of the German Stock Corporation Act. This system was voluntarily examined by the auditor again in 2022. The audit deemed the system capable of recognizing risks that can endanger the existence of the company at an early stage.

Risks that are identified are evaluated in a uniform way. So-called evaluated risks are assessed based on the probability of their occurring and the potential damages. Individual risks are assigned to certain risk groups. Risks or risk groups rated as very high are risks which could cost the company more than € 25 million in the next twelve months. Individual risks that could cost the company between € 12 million and € 25 million are rated as high risks; risks that would cost between € 5 million and € 12 million are categorized as medium risks, and risks that would cost less than € 5 million are deemed low risks. The prioritization resulting from the assessment determines focal points for the development and initiation of countermeasures to prevent or reduce the potential effects of risks.

The individual risks and risk fields described below could have a material adverse effect on the Group’s earnings, financial, and asset situation in the years to come and thus give rise to a negative deviation from the forecast development. For risks categorized as “medium,” “high,” and “very high” we address changes in our appraisal compared to the previous year.

Economic and Industry Risks
The development of the general economic conditions worldwide has a decisive impact on our business performance. The performances of the economies of China, the U.S., and Germany – industrial nations important for ALTANA – have a particularly strong influence on the direction and intensity of demand for our products.

A global economic crisis leading to an economic collapse would bring about significant sales decreases with corresponding influences on our earnings. Recessions limited to certain regions in sales markets important for us could also significantly impair our business performance. With the global orientation of our sales activities, we try to shape our dependence on regional or national markets in such a way that the effects of geographically confined economic crises on the Group are limited.

Thus, the U.S. and China, the most important countries for us, each currently accounts for no more than 20 % of total Group sales. The distribution of our business activities in the core regions of Europe, Asia, and the Americas also has a balanced structure.

Furthermore, we continually update our appraisal of the regional economic development in our internal reporting system to be able to react to foreseeable effects by controlling our procurement, production, and sales activities. We react to long-term shifts in the regional significance of sales markets by adjusting our sales, production, and organizational structures.

In addition to general economic risks, there are marketrelated sales risks concerning individual product groups or application areas. Particularly medium- to long-term trends that structurally lead to a decrease in demand in our target markets can mean that we will not achieve our growth and profitability targets. We try to counteract industry-related sales risks by broadly diversifying our offer. We supply many different industries, which in turn sell their end products in various markets. Therefore, our dependence on the underlying markets is limited. We estimate that no more than 20 % of our sales is attributable to a single consumer segment, such as the automotive sales market, the graphic arts industry, or the construction sector.

The analysis of our industry-specific and application-related sales is a component of our annual strategy process. In addition, we examine changes in future growth potential arising from demand trends and technological developments, and adjust our strategic orientation in the divisions if necessary.

The occurrence of a global economic crisis and the emergence of regional economic crises continue to pose significant risks. The probability of the single risk of a global economic crisis occurring is assessed as unchanged from the previous year. The forecast loss values, however, have fallen, resulting in a slight reduction in the assessed risk. Overall, the risk is still classified as high. The risk of regional economic crises is assessed as virtually unchanged from the previous year. With the probability of occurrence remaining unchanged, the loss amount is expected to be slightly lower. The assessed risk of regional economic crises is therefore still classified as a medium risk.

Sales Risks
Sales risks result primarily from changes in the market and customer structure and an associated increase in the intensity of competition, as well as from marketing risks for products or product groups due to specific demand trends or technological changes.

This can lead to decreasing sales revenues, which can be caused by declining sales volumes or falling prices. To the extent that it is not possible to adjust the cost structure in the short term, this can lead to a drop in profitability.

We counter sales risks by continually optimizing our product and service portfolio, above all on the basis of our innovative ability. In the process, it is decisive that we cooperate closely with our customers at an early stage of development work to adapt to market needs. With our innovation strategy, we can counter increased competition in our markets.

A loss of, mergers of, or backward integration of customers can lead to major changes in the customer structure. Due to our very diversified customer structure, however, these risks are limited. In addition, we cooperate closely with our core customers within the framework of our key account management.

In the group of sales risks in the market and technology area, the assessment of the potential level of losses increased significantly compared with the previous year as a result of a significant rise in the volume of sales due to inflation-related price increases. The uncertain energy supply situation and the rise in energy prices as a result of the war against Ukraine were also key reasons for an increase in the probability of occurrence compared with the previous year. Overall, the magnitude of the risk assessed continues to be classified as high.

Risks from Business Combinations, Participations, and Other Investments
Apart from operating growth, acquisitions of companies, business activities, and individual technologies play a key role in the implementation of the strategy for sustainable profitable growth at ALTANA. Depending on the size of the activities acquired, inadequate integration can place a burden on the Group’s earnings situation and limit its financial headroom. In addition, a business performance that is worse than what was expected when the acquisition was made can lead to impairments of assets with a negative impact on earnings.

To minimize the effects of the risks from business combinations, we examine our acquisition targets systematically and comprehensively and analyze them in detail in a multistage approval process.

To implement its strategic goals, ALTANA is constantly expanding and renewing its development, production, and other facilities. The projects, some of which are very complex, are always subject to certain risks regarding adherence to the schedules, budgeted costs, and the realization of the expected goals. The projects regularly undergo extensive approval and monitoring routines. Due to the high volume of these projects and in particular the general price increases, potential losses have again increased compared with the previous year. However, the probability of occurrence has decreased slightly. Risks from capital expenditures continue to be assigned to medium risks.

Procurement Risks
Among the main procurement risks are a restriction in the availability of individual raw materials and transport services as well as significant price increases for raw materials and logistics, which we cannot or can only partially pass on to the markets in the short term and which may thus have a negative influence on the Group’s earnings situation.

We continually analyze the situation on the raw-materials markets that are relevant for ALTANA. By doing so, we can identify price trends and structural shifts on the part of suppliers at an early stage and devise suitable measures. We take this knowledge into account when we arrange supply contracts. In addition, we bear in mind the volatility of raw-materials prices in our customer relations. To be able to pass on price increases to the markets in the short term, we use the flexibility of price mechanisms and price lockup periods.

Due to Russia’s war against Ukraine and the resulting upheavals in the energy sector, there is a significantly increased individual risk concerning the procurement of energy, particularly with regard to the availability of gas (risk of a so-called gas shortage). At ALTANA’s continental European sites, technical possibilities have been created enabling us to switch to alternative energy sources and thus be independent of natural gas if need be.

Although the probability of occurrence of the procurement risks fell slightly overall compared with the previous year, this is offset by a much higher potential loss, so that the classification of procurement risks has risen from high to very high.

Financial Market Risks
Financial market risks primarily concern short-term and significant changes in exchange-rate relations and interest rates, as well as default risks and the covering of financial resource needs.

Due to exchange-rate fluctuations, the translation of foreign currency positions into the Group currency, the euro, can have a negative effect on the Group’s sales and earnings performance (translation risks). Such negative effects can also result from business conducted in a foreign currency (transaction risks). Interest-rate changes influence financing costs. Defaults on trade accounts receivable or financial receivables can also have a negative effect on the Group’s earnings situation and its financial resources. If there is a lack of availability of financial resources for the implementation of acquisitions or major investment projects, we might not reach our strategic targets.

We safeguard against material transaction risks by concluding forward foreign-exchange contracts in cases where we assume that the underlying business can be realized with a sufficient degree of certainty. In the case of risks from operating activities, the total amount expected is safeguarded in different tranches to offset short-term exchange-rate fluctuations. More information on our evaluation and accounting procedures for hedges can be found in the complete Consolidated Financial Statements on page 59 ff. (point 27).

To minimize credit default risks, we systematically examine the credit rating and payment behavior of our counterparties. The latter include customers, the banks we do business with, and other business partners where payment default can have an influence on our financial situation.

We safeguard availability of financial resources through central control and monitoring of our Group-wide financial resources. In addition, by utilizing various financing instruments, we centrally provide a financial resources framework. It can be used to cover unplanned financial requirements in the short to medium term arising, for example, from acquisitions or a crisis-related decline in operating activities.

The group of financial market risks is still assessed as a medium risk. The assessment of the main individual risk in this risk group – negative effects on earnings from changes in exchange rates – showed both an increased probability of occurrence and an increase in the potential loss amount. The individual risks in the area of inventory valuation and interest rate risks also increased in terms of the amount of loss and the probability of occurrence compared with the previous year. Overall, however, the development of the individual risks did not lead to a change in the classification of the risk group. The continuing high inflows from operating activities and the existing general financial resources will continue to be sufficient to cover the expected outflows for capital expenditures, repayments, and dividends.

Innovation Risks
ALTANA’s position as an innovation and technology leader is a major success factor for the company. It is important for a supplier of highly specialized chemical products to continually introduce new products on the market and to be perceived by our customers as a competent and innovative partner. If this was no longer the case in the future, risks could result for our sustainable growth, the attainment of our profitability targets, and ALTANA’s positioning in the relevant markets.

With our innovation culture, which is put into practice at all levels of our organization, we highlight the importance of innovation and safeguard its status. Both at a decentralized and at Group level, we can continually evaluate and control our research and development activities based on financial and non-financial criteria. By investing aboveaverage amounts in research and development, we can continually introduce products on the market that are tailored to customers’ individual and current needs and thus positively influence our competitive position.

It is important to protect knowhow we develop with patents to convert our knowledge edge into economic success. This includes safeguarding technologies as well as methods and product properties we currently use so that other companies cannot patent them. Both the potential losses and the probability of occurrence of this risk group are slightly below the previous year’s level. Overall, we classify the group of innovation risks as belonging to the medium risk group.

Other Risks
Production risks concern technical disruptions or human failure in production that can be harmful to people or the environment. Our goal is to minimize the effects of machine failure on the value chain by operating production lines independently from one another. It is compulsory for our staff to receive training in the clearly defined process and quality standards in the areas in question. In addition, we conclude property damage as well as plant and equipment breakdown insurances. Russia’s war against Ukraine led to the risk of a possible gas shortage, especially in Europe, due to interrupted gas and oil supplies. This resulted in an increased risk of further significant price increases for raw materials, disruptions to the supply chains for intermediate products, and the risk of production interruptions due to a potential quota system for energy. This critical situation, particularly for the European sites, led to a slight decrease in the probability of occurrence in the group of production risks, but at the same time to a significant increase in the potential loss amount compared with the previous year. This risk group has therefore been upgraded from medium to high.

Information technologies form the basis of nearly all of ALTANA’s business and communications processes. Breakdowns or other disruptions of IT systems can lead to farreaching impairments in all of the Group’s value-added stages, which can have significant effects on business performance (IT risks). In addition, potential risks arise from data loss or theft of business secrets. ALTANA attaches great importance to smooth availability of IT applications and services. To guarantee this, corresponding processes and organizational structures have been established. Emergency plans are in place in case of significant disruptions or losses of data. In the coming years, we will continue to focus on security and protection measures, which we further develop in line with the threat profile. Although the probability of occurrence for this risk group increased slightly, the potential amount of damage decreased as a result of the measures implemented, so that the risk group was downgraded from medium to low.

Delivery of faulty products can cause damage to people, property, or the environment and thus cause liability risks. This can have significant effects on the Group’s asset situation. We minimize this risk by standardizing production processes to a large extent and by taking comprehensive quality control measures. In addition, we continually conduct analyses to assess the hazardous potential of our input materials and products, and we conclude insurances.

Changes in political and regulatory framework conditions can lead to restrictions on trade or foreign-exchange transactions. Due to political unrest, it can be more difficult or even impossible to access the Group’s assets in the country or countries in question. On account of regulatory adjustments, it might no longer be possible to process or sell certain products or ingredients, or only with strong restrictions. We continually examine the political environment in the countries important for us and take current tendencies into account when evaluating business relationships. We only make direct investments in countries in which we assume the political environment is highly stable. We actively take part in legislative procedures and discussions important for us that focus on changes in the regulatory environment. As a result, we can anticipate possible new requirements early on.

While we continue to assess the regulatory risks in the area of EH&S (Environment, Health & Safety) as low on the basis of our expertise, the risk group in the area of political risks had to be upgraded from low to medium. Both the probability of occurrence and the potential amount of losses increased significantly compared with the previous year. In particular, the impact of the sanctions as a result of the war against Ukraine, but also the impact of other trade policy disputes, heightened the risk.

Risks in the area of logistics were now classified as medium due to the more critical assessment of the reliability of logistics chains. Both the probability of occurrence and the potential loss amount of the risk group increased significantly.

Although the intensity of the pandemic varies from region to region and at different times, it is still ongoing. As a result, supply chains and logistics processes may be adversely affected, making it more difficult to sell products and having a negative influence on manufacturing costs. Thus, there is still the risk of economic damage resulting from the coronavirus pandemic. The further course of the pandemic can continue to have an impact on the economic development of all of ALTANA’s sales markets.

Legal violations (compliance risks) can give rise to liability risks or tarnish our reputation, which can have a significant effect on the Group’s earnings and asset situation. We counter these risks within the framework of our compliance management system, inter alia by regularly informing and training our employees about relevant legal requirements. The potential losses within the compliance risk group were increased slightly, and the risk group is still classified as medium risk.

An important basis for long-term success are competent and committed employees. Should we no longer be able to recruit or retain suitable specialists or managers in the future, risks could arise for the successful implementation of our strategy (personnel risks). To counter these risks, ALTANA offers a sophisticated work environment and an attractive compensation system, which is supplemented by various pension plans and wealth creation schemes. Moreover, we regularly offer further education and training programs to budding junior staff members, as well as to specialized and managerial staff.

Compliant Group Accounting
Essential accounting-related risks arise particularly when extraordinary or non-routine issues are handled. These include the first-time consolidation of acquired businesses or parts of companies as well as the recording of the sale of Group assets. Accounting of financial instruments is also subject to risks due to the complex evaluation structure. Risks also arise from fraudulent acts.

At ALTANA, a separate department of the Group’s holding company coordinates and monitors Group accounting. A core component of the control system are the guidelines, process descriptions, and deadlines that this department defines centrally for all companies, guaranteeing a standardized procedure for preparing the financial statements. For complex issues, the instruments needed for uniform accounting are retained centrally for all Group companies. For recording extraordinary processes and complex special issues, we regularly obtain external reports, advice, and statements.

The financial statements of the individual Group companies are prepared decentrally by the local accounting departments. Hence the individual companies are responsible for preparing the financial statements, in keeping with Group guidelines and country-specific statutory accounting requirements.

The work steps needed to prepare the financial statements are defined such that important process controls are integrated. These include guidelines pertaining to the separation of functions and allocation of responsibilities, to control mechanisms, and to IT system access regulations. The respective management explicitly confirms to the Group’s management that the annual financial statements are correct and complete. In addition, important financial statements are audited by the company or Group auditors in charge. The local financial statements are recorded and consolidated via standardized formats and processes in a central IT system. At the divisional and holding company levels numerous manual and IT-assisted control mechanisms are applied. They encompass an analysis and a plausibility examination of the registered data and the consolidated results by Group accounting as well as by the controlling department and other departments with expertise in this area. Required corrections of the information in the financial statements are generally made at the level of the individual company to ensure the data are uniform and reconcilable.

The company auditor and the Group auditor examine issues, processes, and control systems relevant for the generation of financial statements. The Group auditor reports on the audit directly to the Supervisory Board and the Audit Committee. In certain cases, audits are carried out by the central Internal Audit department.

After each process related to the preparation of the financial statements, optimization potential identified at the different levels is analyzed and adjustments of the processes are made.

Opportunities

The identification and evaluation of opportunities for our future business development is integrated into the different planning, analysis, and control processes.

Within the framework of strategic planning, we analyze demand trends as well as market and technology developments with regard to options for action that could enable ALTANA to create value. In addition, the divisions continually examine possibilities of developing new sales markets. During the financial-planning process, the effects of action options are evaluated and discussed so that we can optimally exploit future opportunities. Finally, possible opportunities for short-term business development, along with the attendant risks, are dealt with in detail at all levels of management.

Below, major opportunities are described that could lead to ALTANA’s surpassing its short-, medium-, or long-term goals. The order corresponds to our assessment of the effects on our business performance.

Economic and Industry Development
Should the economic environment in the established industrial regions important for ALTANA, particularly in Asia, the Americas, and Europe, develop better than we anticipated, unexpected growth impetus could arise. As a result, demand for our products and services could develop more positively and exceed our forecast. The same applies to growth in the important emerging countries in Asia and South America. If the growth rates in these nations were higher than expected, we might be able to benefit from this to a disproportionately high extent due to our market positions.

In addition to regional factors, growth impetus can also result from individual branches of industry. Further potential could be opened up, in particular, if the automotive sector and the construction industry showed a positive development, or if there was an increase in the use of silver and gray colors in the consumer sector.

Innovation
We have to continually streamline our product and service portfolio to be able to continue to pursue our strategy for profitable and sustainable growth in the long term. Should ALTANA manage to enhance its innovativeness more quickly than expected or to increase its share of new products for which there is a high demand beyond the target level, there would be even better prospects for growth. Furthermore, customers could demand innovative products manufactured and sold by us more quickly and to a greater extent than we had expected. The same applies if we entered new markets or opened up new application fields for our products.

Business Combinations and Portfolio Measures
Acquisitions play a key role in ALTANA’s long-term value creation. In recent years, we have continually advanced the Group strategically due to acquisitions. At the same time, we cleansed our portfolio of those activities that did not develop in line with our strategic objectives and did not promise to create value for the Group in the long term.

In the future, we intend to continue to boost our growth by acquiring businesses and activities. This is an essential prerequisite for us to achieve our strategic growth targets. Should opportunities arise in the future that exceed our expectations, this can help us strengthen our market positions and open up new market segments. This can also have a positive impact on the achievement of our strategic goals.

Synergies
The ALTANA Group is decentralized to a large extent. Still, in some areas of the value-creation chain and in certain management functions, central units support the divisions and play a coordinating role or provide shared platforms. To the extent that we manage to push forward the networks within the Group more strongly than expected, this may spawn further potential to improve efficiency.