Change

Financial & Compliance risks


Financial risks

External

Risk: Contribution to pension funds – Top five risk

Various external developments may affect assets and liabilities of pension funds, causing higher post-retirement charges and pension premiums payable.

Risk corrective actions

We practice pro-active pension risk management. Our pension policy is to offer defined contribution schemes to new employees and, where appropriate, to existing employees. Our biggest defined benefit schemes have been closed to new entrants since 2001 for ICI, and 2004 for AkzoNobel.

We measure and monitor our pension risks frequently and adopt investment strategies designed to reduce financial risks. We are committed to further de-risking over time. Pension activities are overseen by the Board Committee Pensions (see note 17).

Risk: Access to funding – Top five risk

Inability to have access, control and visibility of liquidity by AkzoNobel and/or its partners in the value chain may have an adverse affect on our business and results.

Risk corrective actions

Our debt profile is strong. We are monitoring financial markets, critical suppliers and customers closely. We have a prudent financing strategy and a strict cash management policy, which are managed by our centralized treasury function (see note 24).

We are committed to maintaining strong investment grade credit ratings. Ratings at year-end were Standard & Poor’s BBB+ (negative outlook) and Moody’s Baa1 (negative outlook).

Risk: Decline of asset values

Impairments and book losses could adversely affect our financial results.

Risk corrective actions

In view of the current financial market conditions, asset value decline offers both opportunities and threats to our company. We are actively participating in industry consolidation. As such we may perform selective acquisitions and may hold assets for sale. Acquisition and divestment opportunities and the management of assets held for sale are continuously monitored by the Board of Management.

We do impairment tests for intangibles with indefinite lives (goodwill, some brands) every year and whenever an impairment trigger exists. For tangibles and other fixed assets, we do impairment tests whenever an impairment trigger exists (see note 1).

Risk: Fluctuations in exchange rates

Exchange rate fluctuations can have a harmful impact on our financial results.

Risk corrective actions

We have operations in more than 80 countries and report in euros. We are particularly sensitive to the relation between the euro and US dollar, pound sterling, Swedish krona and Latin American and Asian currencies. We have centralized treasury and a hedging policy is in place for certain currency exchange rate risks (see note 24). At a more operational level, risks are reduced by the prevalence of local-for-local production, which is standard in many of our businesses.

Compliance risks

External

Risk: Complying with laws and regulations

We may be held responsible for any liabilities arising out of non-compliance with laws and regulations.

Risk corrective actions

We are monitoring and adapting to significant and rapid changes in the legal systems, regulatory controls and customs and practices in the countries in which we operate. These affect a wide range of areas. For instance, with respect to antitrust laws, we are involved in investigations by the antitrust authorities in the European Union and we are defending civil damage claims in relation to alleged antitrust violations in the European Union and the US (see note 22).

We are dedicated to minimizing such risks with special emphasis on the application of our Code of Conduct. We operate under a comprehensive competition law compliance program including training, monitoring and assessment. In 2009, we launched a new company-wide corporate complaints procedure called Speak Up!, which enables all our employees to report irregularities in relation to our Code of Conduct.

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