The process for identifying, evaluating and managing any significant risks forms part of the group’s system of internal controls. These are described in the Directors' Report.
Operational Risks
Political and economic environment
We operate in a range of end-user markets around the world. Potential risk exists, therefore, in the ability to carry out our strategy and do business as a result of material adverse changes in the political and economic environments in the countries in which we operate.
Spectris has a broad spread of markets, products and customers, which limit this risk to a certain degree. During 2009 there was a material adverse change in the economic conditions in the majority of the markets in which we operate. We took a number of actions to mitigate the impact of these adverse conditions, and will take additional actions as needed should conditions deteriorate again, whilst keeping the resources in place to deliver on our longer-term strategy. It is considered that, by taking these actions, together with a strong focus on cash management, maintaining a strong balance sheet and financial position, the group can manage this risk.
Seasonal fluctuations in sales
Our operations are characterised by short lead times and seasonal fluctuations in sales, with some businesses exhibiting a greater trend towards sales in the second half of the year. This limited forward visibility and the potential for delays in the shipment of orders exposes us to the potential risk that we may not meet our sales forecast for the year.
We endeavour to reduce this risk by evening out the first half/second half sales and profit split and ensuring that orders designed to ship in the final few months of the year are carefully followed in order to secure invoicing before the year end. However, the nature of the majority of the company’s business means that visibility of orders will always remain limited.
Acquisition integration
A key element of our strategy is to grow the business portfolio through acquisition of stand-alone or bolt-on businesses which complement or extend the range of products and applications we can provide. Potential risks exist in successfully integrating acquisitions.
We believe that our track record of carefully selecting businesses which fulfil our acquisition criteria and rigorous financial assessment of the potential acquisition’s ability to contribute to growth will continue to ensure that any businesses acquired will be successfully integrated.
New product development
In order to sustain competitive advantage, the group invests significantly in research and development. The development of all new technologies and products involves risk, including the product being more expensive, or taking longer, to develop than originally planned; that the market for the product is smaller than originally envisaged; or that the product fails to reach the production stage.
We endeavour to minimise this risk by ensuring that new product development is carried out in conjunction with customers to establish that the product meets expectations of the market. Customer-Focused Product Development describes in more detail how we involve our customers in the product development process.
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