Risk management
The main risks and the design and operation of the risk management systems at Batenburg Beheer N.V. are explained below by reference to best practice II.1.4 of the Corporate Governance Code.
In 2009, risk management within Batenburg Beheer N.V. was further improved. Following a phase focusing on risk awareness and risk reduction, the Batenburg Enterprise Risk Management (BERM) system entered a new phase. This is focused still more on controlling risks with the aid of ‘key controls’. Through regular interactive determination of the main risks at the companies, the system and the risk-limitation approach is kept up to date. The approach concentrates on the key areas of Sales and Marketing, Procurement and Logistics, Personnel, Project/Production Management, Strategy, Legal and Compliance, Automation, Taxes and Reporting.

With its installation and trading activities, Batenburg Beheer N.V. is exposed to a considerable variety of risks. Set out below is an overview of the main risk areas at present. The main risks are explained in more detail below.

Strategic

The Batenburg operating companies are positioned in relatively open and transparent sales markets, which promote competition. In technical installation, competition often focuses on price when demand is falling, even for complex orders where the total cost of ownership is actually more important than the initial investment. In technical trading, some product lines are hampered by producers that offer the products direct via web applications.
Generally speaking, acquisitions carry higher risks than organic growth. In mature sales markets with limited annual growth, however, acquisitions are necessary in order to achieve the envisaged growth. Prior to an acquisition, close attention is devoted to the match between the culture of the company to be acquired and the Batenburg culture. We also regard continuity in management and senior executives following an acquisition as extremely important in order to achieve good integration.

Operational
Spreading the activities to groups of customers and sub-markets somewhat limits their cyclical sensitivity. The early-cyclical nature of the Trading group and the late-cyclical nature of the Installation group also have a mitigating effect. However, a general recession, such as that of the past year, impacts on Batenburg Beheer N.V. as well. Despite the attention to cost reductions for more efficient operations, we cannot ignore the fact that the shortages of technically and commercially trained personnel will continue in the years ahead. Demographic factors are partly to blame, but the limited intake of students for technical training courses is cause for concern. It is important that young people join the workforce to facilitate the continual transfer of knowledge and to limit the rise in average hourly wages. Contacts with schools, offering work-placements and on-the-job training, and attractive career prospects are highly important for the recruitment and retention of employees. Project control is especially important for the installation companies. We see an increase in larger, complex contracts, including design and construction contracts secured and carried out in the past year. With larger multi-disciplinary projects, it is becoming increasingly important to carefully define the risks and liabilities of contracting parties before the work starts. This applies to both the demarcation of the work to be carried out and to the consequences if one of the parties fails in its duties, as well as for the establishment of guarantees relating to the period after delivery. In day-to-day activities many employees depend on the proper operation of ICT systems. Much has been invested in recent years in curbing ICT risks by the implementation of new ERP systems and the central storage and management of data. The tightening of procedures aimed at a high degree of integrity, confidentiality and availability of electronic data is receiving constant attention. Further uniformity in the ERP systems used is considered desirable for the purpose of information exchanges, risk management and efficiency.

Financial
Significant financial risks include the working capital (particularly accounts receivable and inventories) and the buffer capital of contract partners. In 2009, management of stocks and debtors was tightened and this will continue in 2010. A fair number of financial problem situations are expected in the coming year, particularly in the construction sector and the related companies. The persistent frost in early 2010 means that contractors could run into difficulties if they are unable to invoice for a longer period. The field of tension in managing stock levels will increase in 2010. On the one hand, it is necessary to guard against technical obsolescence of stocks with lower sales volumes. At the same time, we see a fair number of logistical problems arising at foreign production suppliers that have substantially reduced production capacity in the past two years. Sharply rising delivery times were already causing problems in global procurement of electronic components at the start of 2010, for example. The volatility of raw material prices could increase as the economy recovers, and affect cost prices in the Installation and the Trading group. Wage adjustments will be controlled in 2010. When the economy grows, labour market shortages for technical and commercial staff will re-emerge.

Reporting
The reporting system is important for risk management. The Batenburg Beheer N.V. units provide monthly reports covering key financial and operational elements such as production and revenue, debtor and stock positions, offers and orders, work in hand and the order positions, invoicing and cash flows. Each quarter, a consolidated balance sheet and an income statement are drawn up, with notes. Budgets for the current year are updated in the course of the year on the basis of forecasts by the managements of the operating companies. Quarterly reports are discussed with the Supervisory Board.

Risk management and control systems
As a general rule, exposure to risk has to be proportionate to the scale of the activities concerned and the return achieved. We examine on a case-by-case basis whether it is worthwhile to mitigate the risk, by insuring it, for instance, or bearing it ourselves but identifying it beforehand as much as possible.

At Batenburg Beheer N.V. risk management has different facets. The risks relating to strategy, compliance and financial reporting are regular topics of discussion in consultations attended by varying representatives of the Supervisory Board, the Executive Board of the holding company, and the managements of the operating companies. Supervisory Directors pay regular visits to operating companies to keep abreast of developments in their business operations. The managements of the operating companies are responsible for the operation of their own risk management systems and report their findings to the holding company through the BERM. The system is based on the premises of the COSO model, and has been tailored to the specific activities of the two segments Installation engineering and Technical trading of the Batenburg Group. The findings and risk-control measures are recorded internally and are discussed regularly with the managements of the operating companies. The outcome is then discussed in a meeting between the Executive and Supervisory Boards.

The Batenburg Beheer N.V. financial management system includes overseeing the realisation of the operating companies’ policy plans. The holding company verifies beforehand whether the proposed approach is compatible with group objectives. After jointly adopting the plans, the managements of the operating companies are accountable and report through a fixed reporting structure, by means of interim meetings with the holding company, financial statements and a formal meeting of shareholders per operating company. Other elements of the management system include involvement of the Executive Board of the holding company in substantial capital expenditure decisions, the contracting of large contracts, appointments and dismissals of key staff members and the financing and insurance of the operations.

Using a risk-focused approach, the auditor reviews each year the main aspects of the design and operation of the accounting system and embedded internal controls. In planning his audit, he makes use of the BERM records. His findings are reported to the managements of the operating companies, the Executive Board of the holding company and the Supervisory Board. Both the Executive Board of the holding company and the managing directors of the operating companies issue a Letter of Representation by reference to the financial statements.

The Executive Board is aware that despite all the efforts to that effect the management systems in place cannot provide absolute assurance that the objectives will be attained, nor that these systems can entirely prevent material misstatements, loss, fraud and acts in breach of laws and regulations. The purpose of the systems is to enable the Batenburg Group to continue doing business in a responsible and controlled manner. Risk management is used in a positive manner to ensure that it contributes to a better management of processes and to calculated and responsible risk-taking.

In Control Statement

The Executive Board is responsible for the design and effectiveness of the risk management and internal control systems. The Executive Board of Batenburg Beheer N.V., to the best of its knowledge and with due regard for the foregoing, is of the opinion:

• that the risk management and internal control systems provide reasonable assurance that the financial reporting does not contain any material misstatements;
• that the risk management and internal control systems have operated properly in the year under review; and
• that there are no indications that the risk management and internal control systems will not operate properly in the current year.

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