Entrepreneurial risks

a) Revenue
Nedap’s entrepreneurial and project-based nature means that its revenues vary annually. Due to the high added value (in percentage terms) of the company’s revenue (revenue minus materials), fluctuations in revenue will generate more than proportionate percentage variances in the result. New products and systems and the project-based nature of the revenue, combined with relatively short project lead and delivery times, make it difficult to estimate future revenue.

Various internal and external factors can also have both a negative and positive impact on revenue. Important factors in this respect are delays during technical and/or market development, start-up problems with new products, intensified price competition, exchange rates (mainly the dollar) and macro-economic developments.

Nedap attempts to limit such risks where possible by means of its added-value-focused diversification policy that is based on the company’s expertise. This policy creates opportunities for organic revenue growth, whilst avoiding reliance on developments in a single market.

b) Costs
Costs are another area of entrepreneurial risk. At Nedap these principally concern development project costs and product start-up costs. In addition, price increases in commodity and component markets cannot always be immediately passed on to the customer, thus creating pressure on margins. Risks arising from customer insolvency can be reduced through credit insurance. The Controlling Groenlo Department constantly monitors the currency markets and assesses in what situations and to what extent exchange rate risks can and must be hedged.

c) Financial instruments
The risks arising from the use of financial instruments are described in Financial Risk Management in the financial statements.

d) Staff
An important risk factor at Nedap concerns the ability to recruit and retain the right staff. High-quality, entrepreneurial employees, above all, will seek to minimise the aforementioned risks.

Risks that arise from breaches of company or social standards and regulations, such as fraud.
Apart from social control, managers play an important role in preventing fraud and other forms of inappropriate behaviour at Nedap. They must set the right example and, through ‘hands on’ management, promote awareness of what is and what is not tolerated. In addition, the Controlling Groenlo Department continuously assesses and monitors the administrative organisations and internal measures of control, devoting extensive attention to the prevention of fraud. During the annual audit, the external auditors discuss the internal control measures aimed at preventing and detecting fraud with various officers in the organisation.