Merck 2008 Annual Report Download - page 66

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MANAGEMENT REPORT OF THE MERCK GROUP 61
24 Responsibility
26 Merck shares
30 Pharmaceuticals business sector
50 Chemicals business sector
12 Overall economic situation
14 Economic development
of Merck
15 Financial position and results
of operations
60 Corporate and Other
61 Risk report
64 Report on expected developments
64 Subsequent events
Risk report
Risk and opportunity management
Every conscious business decision is based on weighing the associated risks and oppor-
tunities. Therefore, a targeted approach to handling opportunities and potentially nega-
tive developments is an integral component of a value-oriented company management.
Risk management in the Merck Group is supported by a uniform, corporate-wide
system. Risk management activities are aimed at identifying risks at an early stage and
evaluating, controlling and managing them. In order to fulfill this task, corresponding
roles and responsibilities have been defined and outlined throughout the Group by
means of binding guidelines.
Within the scope of a standardized risk process, the current risk situation is reported
to the Executive Board in six-month intervals or, in special cases, on an ad-hoc basis.
The risk management system and compliance with the corresponding guidelines are
reviewed regularly by the Internal Auditing department.
Opportunities are identified, analyzed and managed in the respective divisions by
means of suitable processes. Information on the opportunities in the individual divi-
sion, and particularly with respect to R&D, are described in more detail starting on
page 39 as well as on pages 54 and 58. In agreement with the Executive Board, it is
ensured that opportunities are seized actively and in line with the corporate strategy.
Business-related risks
Merck has integrated its risk management system into the ongoing business planning
processes. Potential negative developments, for example changes in customer demand
or new political framework conditions, are described and evaluated in the risk reports,
so that we can take countermeasures in good time if any events should lead to devia-
tions from the business plan. Risks in connection with investment decisions are lowered
by the use of detailed guidelines.
As of December 31, 2008, the Merck Group operated 54 production sites in 25 dif-
ferent countries. We have taken appropriate measures to minimize the risk of a supply
bottleneck for important products. Total revenues and the operating result of the
Merck Group depend on a large number of pharmaceutical and chemical products for
various industries. This diversification itself minimizes risk, since the markets differ
in their structure and economic cycles. This is also an expression of the Merck strat-
egy to remain an integrated pharmaceutical and chemical company.
We try to prepare for the potential risks of a changing market environment, for
example the current recession, further health care cost containment measures or new
products from competitors, by continually observing market developments and acting
with appropriate foresight.
With respect to the Liquid Crystals and Performance & Life Science Chemicals divi-
sions, Merck is addressing the momentary decline in demand due to the economic situa-
tion by temporarily adjusting production capacities.
Corporate-wide system helps
to steer risk.
Merck’s diversification con-
tributes to risk minimization..