Principal risks and uncertainties

In our 2015 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 three to five years as well as beyond the five year time horizon. We consider the medium-term and long-term risks as communicated in the Annual Report of 2015, including the five medium-term risks assessed to increase, to be still valid. This also applies to increased uncertainty due to the result of the UK referendum. Please refer to our website for our Annual Report of 2015.

Risk: Worsening of economic conditions

Risk description

The global economy remains fragile and it continues to be difficult to predict customer demand and raw material costs. AkzoNobel is susceptible to decreased growth rates within high growth markets and/or continued economic and market downturn in mature markets. The effects could lead to a decline in demand and deteriorating financial results, which in turn could result in the company not realizing its financial targets.

Risk corrective actions

Continue our strategy to bring down our operational cost base and reduce complexity.

Leverage our Global Business Services to further standardize core functional processes in all regions across the organization.

Further deploy the commercial excellence programs and more sustainable product solutions to capture organic growth and offset the effects of decreased economic growth rates.

Have contingency plans prepared for a selected number of scenarios, dealing with geographical or segment slowdowns.

Risk: Information Technology

Risk description

One effect of the company’s longer term Information Technology strategy is increased reliance on fewer, consolidated, critical applications, including our industrial process control systems. The amount of digital exchanges of business transactions with customers, suppliers and other stakeholders is increasing. Non-availability of our critical IT systems, or unauthorized access through cybercrime or other events, can have a direct impact on our production processes, our competitive position and the reputation of our company.

Risk corrective actions

Continuously test and update the systems used for information security.

Further implement measures such as redundant design, back-up processes, virus protection, anti-spoofing and forensic scans.

Centrally monitor access control processes to our key IT systems.

Launch training on IT security via e-learning.

Roll-out of the new IM security standard for industrial control systems to our manufacturing locations.

Risk: Fluctuations in exchange rates

Risk description

Exchange rate fluctuations can have a positive and negative impact on our financial results. We have operations in more than 80 countries and report in euros. We are particularly sensitive to movements in the US dollar, pound sterling, Swedish krona and Latin American and Asian currencies.

Risk corrective actions

A centralized treasury function and hedging policy is in place for certain currency exchange rate risks (see Note 22 of the Consolidated financial statements).

At a more operational level, risks are reduced by the prevalence of local-for-local production.

Reduce as much as possible the impact of transactional exposure on the results of our businesses by striving for natural hedges in our main currencies.

Risk: Complying with laws and regulations

Risk description

Our international footprint exposes us to continuously expanding laws and regulations. We may be held responsible for any liabilities arising out of non-compliance with these laws and regulations.

Risk corrective actions

Monitor and adapt to significant changes in the legal systems, regulatory controls, customs and practices in the countries in which we operate.

Remain dedicated to minimizing AkzoNobel’s compliance risk by fostering an open and transparent culture, continuously educating our employees worldwide and increasing awareness.

Monitor overall compliance through our comprehensive annual non-financial letter of representation process, as well as our annual competition law compliance declaration.

Embed company-wide standard setting and compliance awareness through activities and training programs, including training on the new Code of Conduct.

Risk: Attraction and retention of talent

Risk description

We face the challenge of ensuring continued alignment between a rapidly evolving business environment and qualifications, capabilities and talent of our workforce. This is an increasingly complex process as the labor market poses different challenges across disciplines and regions. Having the right people, with the right capabilities, experience and background will, to a large extent, determine the success of our organization and requires the development of an increasingly longer term view on future talent needs.

Risk corrective actions

Strengthen AkzoNobel Employee Value Proposition based on revised company purpose and stronger company brand strategy.

Further improve talent and succession action planning and follow up.

Roll-out new leadership behaviors with impactful leadership assessment and development curriculum and integration into our Performance and Development Dialog.

Further build and develop the AkzoNobel Academy with strong functional competency frameworks and well-defined development curriculum and career planning. Embed company-wide standard setting and compliance awareness through activities and training programs, including training on the new Code of Conduct

Board of Management’s statement on the condensed half-yearly financial statements and the interim management report.

We have prepared the half-yearly financial report 2016 of AkzoNobel and the undertakings included in the consolidation taken as a whole in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Dutch disclosure requirements for half-yearly financial reports.

To the best of our knowledge:

  1. The condensed financial statements in this half-yearly financial report 2016 give a true and fair view of our assets and liabilities, financial position at June 30, 2016, and of the result of our consolidated operations for the first half year of 2016.
  2. The interim management report in this half-yearly financial report includes a fair review of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Act on Financial Supervision.

Amsterdam, July 19, 2016
The Board of Management

Ton Büchner, Chief Executive Officer
Maëlys Castella, Chief Financial Officer