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Principal risks and uncertainties


In our 2011 Report we have extensively described our risk management framework and our major risk factors which may prevent full achievement of our objectives within the forthcoming five years. In respect of the principal risks for the second half of 2012, we consider that these top 5 risks are still valid.

Risk

 

Risk description

 

Risk corrective actions

Adapt to economic conditions

 

Failure to adapt adequately and in time to weak and volatile economic conditions can have a harmful impact on our business and results of operations.

 

The Executive Committee has defined a comprehensive performance improvement program to deliver €500 million EBITDA by 2014. Conceptually, the program consists of three main building blocks, being operational professionalization, functional standardization and business unit specific adaptations. Operational professionalization addresses issues such as product complexity reduction, procurement, manufacturing and distribution excellence, and margin management. Business unit adaptations and operational professionalization are expected to contribute around 90 percent of the expected 2012 benefits of €200 million, while functional standardization will primarily be an important enabler.

 

 

 

 

 

International operations

 

Because AkzoNobel conducts international operations, we are exposed to a variety of risks like unfavorable political, social or economic developments and developments in laws, regulations and standards which could adversely affect our business.

 

We spread our activities geographically and serve many sectors to benefit from opportunities and reduce the risk of instability. Political, economic and legislative conditions are carefully monitored. The Executive Committee decides on all significant investments and the countries and industry segments in which AkzoNobel conducts its business.

 

 

 

 

 

Attraction and retention of talent

 

Our ambitious growth plans may not be achieved if we fail to attract and retain the right people.

 

Growing our business calls for the need to grow our people. Therefore, AkzoNobel puts emphasis, not only on attracting and retaining employees, but also on their motivation, development and building capability. To strengthen these efforts, we have a dedicated Executive Committee member for the Human Resources function and have implemented an employee engagement program. The Human Resources function is also part of the comprehensive three-year performance improvement plan, launched in October 2011. HR instruments such as performance appraisals, the employee survey and leadership identification and review, as well as leadership development, are used to optimize support to our business. We provide clarity in the working environment through information and communication programs. Special focus is dedicated to high growth markets. Remuneration packages may include long and short-term incentives. However, the Executive Committee ensures that employees are not encouraged to act in their own interest and take risks that are not in keeping with the company’s strategy and risk appetite.

 

 

 

 

 

Sourcing of raw materials

 

Inability to access sufficient raw materials, growth in cost and expenses for raw materials, energy and changes in product mix may adversely influence the future results and growth of our company.

 

We aim to use our purchasing power and long-term relationships with suppliers to acquire raw materials and safeguard their constant delivery in a sustainable manner, to secure volumes and to cooperate on innovation and sustainability. We have made an inventory of single and sole sourced raw materials and are actively pursuing plans to improve this situation. We have diversified contract length and our supplier base. Our strengthened global sourcing strategy enables us to bundle the purchasing power, both in product related and non-product related requirements. We continuously monitor the markets in which we operate for developments and opportunities and adapt our purchasing strategy accordingly.

 

 

 

 

 

Cash flow

 

The threat of a European sovereign crisis, exposure to potentially worsening economic conditions, raw material price increases, and funding of pension schemes may lead to insufficient free cash flow generation to support our growth strategy.

 

We are committed to maintaining strong investment grade credit ratings. Ratings at mid-year were Standard & Poor’s BBB+ (stable outlook) and Moody’s Baa1 (stable outlook). We have launched a comprehensive performance improvement program to deliver €500 million EBITDA by 2014. We have a prudent financing strategy and a strict cash management policy, which are managed by our centralized treasury function (see Note 24 in the Financial statements of our 2011 Report).

Copyright © 2012 Akzo Nobel N.V.