Siemens 2015 Annual Report Download - page 30

Combined Management Report
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and by our ability to sustain them. We constantly control and
monitor the progress of these projects and initiatives using
standardized controlling and milestone tracking approaches.
Portfolio measures, at-equity investments, other invest-
ments and strategic alliances: Our strategy includes divesting
activities in some business areas and strengthening others
through portfolio measures, including mergers and acquisi-
tions. With respect to divestments, we may not be able to divest
some of our activities as planned, and the divestitures we
do carry out could have a negative impact on our business,
financial condition, results of operations and our reputation.
Mergers and acquisitions are inherently risky because of diffi-
culties that may arise when integrating people, operations,
technologies and products. There can be no assurance that any
of the businesses we acquired recently can be integrated suc-
cessfully and in a timely manner as originally planned, or that
they will perform as anticipated once integrated. In addition,
we may incur significant acquisition, administrative and other
costs in connection with these transactions, including costs
related to integration of acquired businesses. Furthermore,
portfolio measures may result in additional financing needs
and adversely affect our capital structure. Acquisitions led to
substantial addition to intangible assets, including goodwill in
our Statements of Financial Position. If we were to encounter
continuing adverse business developments or if we were other-
wise to perform worse than expected at acquisition activities,
then these intangible assets, including goodwill, might have to
be impaired, which could adversely affect our business, finan-
cial condition and results of operations. Our investment port-
folio consists of investments held for purposes other than trad-
ing. Furthermore, we hold other investments, for example,
Atos SE and OSRAM Licht AG. Any factors negatively influenc-
ing the financial condition and results of operations of our
at-equity investments and other investments, could have an
adverse effect on our equity pick-up related to these invest-
ments or may result in a related write-off. In addition, our busi-
ness, financial condition and results of operations could also be
adversely affected in connection with loans, guarantees or
non-compliance with financial covenants related to these
at-equity investments and other investments. Furthermore,
such investments are inherently risky as we may not be able to
sufficiently influence corporate governance processes or busi-
ness decisions taken by our equity investments, other invest-
ments and strategic alliances that may have a negative effect
on our business. In addition, joint ventures bear the risk of dif-
ficulties that may arise when integrating people, operations,
technologies and products. Strategic alliances may also pose
risks for us because we compete in some business areas with
companies with which we have strategic alliances. Besides
other measures, we handle these risks with standardized pro-
cesses as well as dedicated roles and responsibilities in the
areas of mergers, acquisitions, divestments and carve outs.
This includes post closing actions as well as claim management
and centrally managed port folio activities.
A.8.3.2 OPERATIONAL RISKS
IT security: Our business portfolio is dependent on digital tech-
nologies. We observe a global increase of IT security threats and
higher levels of professionalism in computer crime, which pose
a risk to the security of products, systems and networks and the
confidentiality, availability and integrity of data. We are facing
active cyber threats from sophisticated adversaries that are
supported by organized crime and nation states engaged in
economic espionage. We attempt to mitigate these risks by
employing a number of measures, including employee training,
comprehensive monitoring of our networks and systems, and
maintenance of backup and protective systems such as fire-
walls and virus scanners. Our contractual arrangements with
service providers aim to ensure that these risks are reduced in
an adequate manner. Nonetheless, our systems, products, solu-
tions and services, as well as those of our service providers re-
main potentially vulnerable to attacks. Such attacks could po-
tentially lead to the publication, manipulation, espionage or
leakage of information, improper use of our systems, defective
products, production downtimes and supply shortages, with
potential adverse effects on our reputation, our competitive-
ness and results of our operations.
Operational failures and quality problems in our value
chain processes: Our value chain comprises all steps, from
research and development to supply chain management, pro-
duction, marketing, sales and services. Operational failures in
our value chain processes could result in quality problems or
potential product, labor safety, regulatory or environmental
risks. Such risks are particularly present in our Industrial Busi-
ness in relation to our production and construction facilities,
which are located all over the world and have a high degree of
organizational and technological complexity. From time to
time, some of the products we sell might have quality issues
resulting from the design or manufacture of such products or
of the commissioning of such products or from the software
integrated into them. Our Healthcare business, for example, is
subject to regulatory authorities including the U. S. Food and
Drug Administration and the European Commission’s Health
and Consumer Policy Department, which require us to make
specific efforts to safeguard our product quality. If we are not
able to comply with these requirements, also our reputation
may be adversely affected. Several measures for quality im-
provement and claim prevention are established and the in-
creased use of quality management tools is improving visibil-
ity and assists us strengthen the root cause and prevention
process.