Financial reporting risks

Payment transaction risks
Kendrion has imposed payment transaction procedures and segregation of duties guidelines on all operating companies. Kendrion monitors compliance with these guidelines.

Customer specific machines
A number of Kendrion’s operating companies carry customer specific machines for customers on their balance sheets that are used to manufacture orders for those customers. Kendrion’s results could be adversely influenced by the loss of one of these customers when no setoff arrangement is in place. However, in most instances a solution for any impairment, where relevant, is found via contractual clauses or consultations with the customer.

Inventory risks
Inventories need to be maintained for the operations. However, inventories are subject to fluctuations in value and, consequently, can cause fluctuations in the results. Losses can be incurred, in particular on customer specific and obsolete stock. The Kendrion Group Reporting Manual lays down stringent guidelines for monthly stock valuation and monitoring.

Tax risks
Kendrion operates in twelve countries, with companies that possess a high degree of autonomy. In most countries the responsibility for accurate tax returns has been assigned to the local management. Kendrion carries out an annual inventory, at corporate level and in close collaboration with renowned international tax consultants, to assess whether fiscal developments could have an effect on the company’s subsidiaries.

During the period leading up to the sale of Distribution Services vendor due diligence was conducted at most of the Vink companies which extended to issues such as various taxes including corporation tax, wages tax and turnover tax, etc. The matters warranting attention revealed by this vendor due diligence included transfer pricing issues and, at a single local level, incorrect VAT tax returns for foreign deliveries or wage tax issues. This in turn resulted in the implementation of measures designed to mitigate the risk of additional tax assessments to the greatest possible extent. In one instance though this was not possible, but the question is whether the risk will materialise.

Management systems
The Board is responsible for the internal risk management and control systems, and for the optimum management of the strategic, operational, financial and reporting risks confronting Kendrion. The internal risk management and control systems extend to issues including policy-making, processes, duties, influencing conduct and other aspects of the organisation that jointly provide for the achievement of targets and the prevention or timely identification of potentially material errors, loss, fraud, or infringement of legislation and regulations. T