Principal risks

In common with most organizations worldwide, Gemalto is affected by a number of risk factors, not all of which are within our control. Some factors, such as macroeconomic factors, are likely to affect the performance of businesses generally, while others are particular to our operations. This section sets out the risks management believes are the principal risks to Gemalto, most being specific particular to our business. Accordingly, it is not intended to be an extensive list of all the risks that may affect our business.

Strategic risks

Risk area Most important potential impacts on Gemalto Mitigating actions
Lower growth, decrease in activities or increase in competition Financial – Capacity of innovation to bring new products and applications to the market. In 2009, Gemalto filed 103 new patent applications.
– Focus on creating value to clients. In 2009, overall client satisfaction improved 13% to 715 points (2008: 631)
– Strict pricing discipline.
– Critical size and global presence
Acquisitions and joint ventures Financial and operational, loss of key people – Experience of successful combinations, nine acquisitions since the Combination.
– Dedicated M&A team and processes.
– M&A Committee with Board Members.
Technology shift Financial and reputational – Diversified technology portfolio approach.
– Participation in industrial bodies and standardization organizations. Many awards for technological innovations (see www.gemalto.com/companyinfo/about/awards)
– Strong Research & Engineering and Market Intelligence teams.

Operational risks

Risk area Most important potential impacts on Gemalto Mitigating actions
Business interruption, including crisis mismanagement Financial, commercial and reputational – Risk mapping with regular updates.
– Crisis management framework.
– Contingency plans build-up.
– Diversified industrial footprint.
Availability of chips Financial and commercial – Multiple sourcing.
– Safety stocks management.
– Protection clauses in contracts.
Decoding of encryption programs Financial and reputational – Strong security and cryptography expertise.
– Market Intelligence team.
– Six sites with ISO 27001 certification.
Product defects Commercial, financial and reputational – Standardized manufacturing processes.
– Quality Management systems.
– 27 sites with ISO 9000 certification.
– Product liability insurance.
Bidding and execution failures of major contracts Commercial, financial and reputational – Project-based organization for government program bids.
– Key account managers.
– Safety certifications and organization
– Crisis management.
Fraud
(including fraudulent and illegal acts, misappropriation of assets)		 Financial and reputational – Code of ethics.
– Anti-fraud coordination structure and policy.
– Strong internal control environment.
– Security policies and department.
– Awareness and training of employees.
– Whistle-blowing.
Exposure to country risk
(political, regulatory and trade)		 Financial – Involvement of treasury, tax and legal departments at the early stages of international operations.
– Travel intelligence and medical repatriation cover.
Infringement to intellectual property rights (IPR) Financial and reputational – Dedicated IPR team.
– Protection clauses in contracts.
– Internal inventors policy.

Financial risks

Risk area Most important potential impacts on Gemalto Mitigating actions
Foreign exchange risk Financial – Centralized currency risk management.
– Natural hedging (i.e. matching costs and revenue currencies).
– Hedging transactions (foreign exchange forward contracts and options recorded as cash flow hedges).
Financial counterparty risk Financial – Risk limits set for counterparties.
– Usage of plain vanilla hedging instruments and low risk money market investment.
– Working with financial institutions of investment grade (deposits, hedging transactions).
Financial reporting risks
(revenue recognition process, inventory valuation, taxation and other complex accounting issues)		 Financial and reputational – Financial policies and procedures.
– Internal Audit department.
– Dedicated team on internal control over financial reporting.
– Single financial reporting tool company wide (Hyperion Financial Manager).
– Single Enterprise Resource Planning (ERP) under deployment.