Elanco ELAN Business Risk Report

I. Financial Risks

A. Currency Exchange Risk

Elanco, being a global animal health company, engages in transactions in various currencies and is therefore exposed to currency exchange risks. Fluctuations in foreign exchange rates may affect the company’s earnings, especially when converting revenues from overseas markets back to U.S. dollars.

B. Market Volatility Risk

Market volatility can significantly impact Elanco’s financial performance and stock price. As the animal health industry is susceptible to market cycles, economic downturns can reduce spending on animal health products and services.

C. Credit Risk

Elanco faces credit risk from its customers, which can impact the company’s financial results if key customers are unable to meet their payment obligations. This risk may increase in economic downturns, affecting the veterinary and animal husbandry sectors.

II. Operational Risks

A. Supply Chain Disruption Risk

Supply chain disruptions can affect Elanco’s ability to manufacture and deliver products efficiently. Factors such as political instability, pandemics, or natural disasters in countries where suppliers are located could disrupt operations.

B. Regulatory Compliance Risk

Elanco operates in a highly regulated industry and must adhere to numerous regulatory requirements across different countries. Failure to comply with these regulations can result in significant fines, penalties, or restrictions on its products.

C. Technology and Cybersecurity Risk

Elanco relies heavily on technology and digital tools to operate its business. Cybersecurity threats and data breaches could jeopardize confidential business and customer data, leading to financial and reputational damage.

III. Strategic Risks

A. Competition Risk

Elanco faces intense competition in the animal health sector, not only from major global companies but also from generic product manufacturers. This competitive environment could put pressure on pricing and market share.

B. Acquisition Integration Risk

Elanco’s growth strategy includes acquiring other companies to strengthen its market position. Integrating these companies involves risks such as cultural clashes, unforeseen operational issues, and the challenge of achieving anticipated synergies.

C. Geographic Expansion Risk

As Elanco expands geographically, it encounters diverse operational challenges and risks, including varying legal environments, customer preferences, and political complexities, which may impact its success in new markets.

IV. Reputational Risks

A. Product Safety and Recall Risk

If Elanco’s products are found to be defective or unsafe, the company may need to recall them. Such recalls can lead to significant financial losses and damage to its reputation.

B. Environmental and Social Responsibility Risk

As a company involved in the production of pharmaceuticals and chemicals for animals, Elanco must manage the environmental impact of its operations. Failure to effectively manage environmental risks can lead to sanctions, lawsuits, and damage to its reputation.

C. Public Relations Crisis Risk

Incidents such as executive misconduct, unethical practices, or public opposition to business strategies could lead to public relations crises, harming Elanco’s reputation and stakeholder trust.

V. Risk Mitigation Strategies

A. Hedging against currency fluctuations

Elanco actively engages in foreign exchange hedging strategies to manage the risks associated with currency fluctuations, helping stabilize financial results.

B. Diversification of suppliers

To minimize the risk of supply chain disruptions, Elanco diversifies its supplier base across multiple regions and regularly assesses the stability and reliability of its suppliers.

C. Continuous monitoring and compliance with regulations

Elanco ensures regulatory compliance by continuously monitoring legal changes in each market and adapting its business practices accordingly to mitigate compliance risks.

D. Robust cybersecurity measures

Elanco invests in robust cybersecurity measures and employee training to prevent cyber threats and protect business and consumer data, reducing the potential impact of a security breach.

E. Focus on innovation and differentiation

To mitigate competition risk, Elanco places a strong focus on innovation and the development of differentiated products that meet specific customer needs and establish a competitive edge.

F. Comprehensive crisis communication plan

Elanco has developed a comprehensive crisis communication plan to effectively respond to public relations crises, aiming to preserve its reputation and maintain the trust of stakeholders in critical situations.