Opportunities and risks

Management report

Galenica defines risk as the possibility of an event or action leading to immediate financial loss or other adverse consequences. Galenica has a risk management process in place that supports the Board of Directors, the Executive Committee and the respective management teams of the Group companies in identifying and assessing potential risks in good time and taking the necessary preventive measures. The goal of this process is to identify and assess significant risks at all management levels and to manage them while making conscious use of the opportunities the process provides.

As part of Group-wide Galenica Risk Management (GRM), the companies in the Group conduct a risk assessment at least twice a year. In spring, the risk managers identify the risks across the Group, categorise and assess them and define measures for managing them. This standardised process is based on a risk matrix in which the most important strategic and operational risks and their possible effects – particularly in terms of financial reputation – are identified according to predefined criteria and then evaluated according to their probability of occurrence and impact. These risks are recorded in a risk matrix for each Service Unit and, depending on their significance, also included in the Group’s risk matrix. In spring, the focus is on the management, identification and assessment of risks, and in autumn on the management of measures. In doing so, the risk managers review the measures and deadlines as well as any significant changes to risks. Controlling supports the risk managers in this process and ensures accurate reporting at the appropriate level.

The Board of Directors of Galenica receives a summary of the most important risks and measures from the Executive Committee at least twice a year. The Board of Directors approves the GRM. Inputs and comments on risk assessments and measures are implemented as part of the subsequent risk management process, if necessary.

Most important risk cluster and measures (pursuant to Art. 964a et seq. CO)

Galenica divides its risks into risk clusters and defines measures for each risk:

Risk cluster	Risk description	Measures
Patient safety	Incorrect delivery/dispensing of medication (incl. blister packaging) to patients (health risk), damage to patient due to an internal process error.	Further development of the Quality Management System in the pharmacy in order to have more time in the pharmacy for patient safety.
Patient safety		Deviation management form, data evaluation and regular internal exchanges on improvements (e.g. e-prescription and article scanning).
Employees	Shortage of skilled workers and high staff turnover.	Employer branding
		Social Media Campaign
		Strategic & Social Recruiting
		New Career Site
Procurement market	Delivery delays/availability of products/raw materials.	Safety Stock Initiative in collaboration with pharmaceutical companies to ensure supply via larger warehouses.
	Availability of spare parts.	Increased spare stock of critical parts.
	Price pressure due to the general situation in various areas (inflation/price increase).	Forward-looking planning and increased inventory coverage for sensitive raw materials. Examining alternative procurement options and renegotiating or obtaining postponement of price increases.
	Elimination/Expiry expiration date special procurements.	Risk assessment and differentiated procurement.
Sustainability	Many of Galenica’s sustainability risks are reflected in the existing risk clusters. In 2023, climate risks are predominantly represented in the sustainability cluster. These are primarily natural hazards caused by climate change.	Protection of employees through appropriate working conditions (air conditioning, etc.).
		Protection and upgrading of sites against climate risks such as flooding.
		Alternative and independent power supply (photovoltaics, heat pumps, etc.) to maintain operations, e.g. in the event of power outages.
		Introduction of sustainable logistics solutions.

The GRM identifies sustainability risks in the above-mentioned risk clusters. These are essentially outside-in risks. In the 2024 financial year, the risk clusters and measures will be continuously developed and enriched, especially in the area of climate risks.

Internal control system

As part of its risk management system, Galenica operates an internal control system (ICS) to ensure reliable internal and external financial reporting and to prevent misstatements and errors about business transactions. The ICS offers the necessary processes and controls to ensure that risks in connection with the quality of the company’s financial reporting can be identified and managed in good time. A thorough review of the existence of the processes and controls of the Galenica ICS is carried out annually by the external auditors at the time of the interim audit. The results of these reviews are reported to the Audit and Risk Committee. Management takes appropriate measures to continuously improve business processes in the areas of purchasing, procurement, investment, sales, human resources, general financial management and reporting, and IT controls.

Internal Audit

Internal Audit carries out audits of operational and strategic risk management and the ICS in accordance with the audit plan determined by the Audit and Risk Committee. It carries out audits, analyses and interviews throughout the Group and supports the Service Units in achieving their objectives by ensuring an independent assessment of the effectiveness of internal control processes. Internal Audit prepares regular reports on the audits carried out and reports directly to the Audit and Risk Committee in writing. The activities of Internal Audit are conducted through contracts issued to external service providers.