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Principal risks and uncertainties


Our 2009 Report contains an overview and description of the major risks that we face for the forthcoming 5 years. As a result of market conditions, the risk related to sourcing of raw materials has increased during the first half of 2010. Given a cash outlook adequate to deal with maturing debt, AkzoNobel no longer assesses the risk related to access to funding as a top 5 risk. An overview of our principal (top 5) risks for the second half of 2010 and our risk corrective actions is provided in the table below.

Risk

 

Risk description

 

Risk corrective actions

 

 

 

 

 

Adapt to economic conditions

 

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

 

One of the principal uncertainties facing our company is the development of the global economy. Economic recovery remains fragile and it continues to be difficult to predict customer demand. For planning and budgeting we apply various scenarios to be best prepared for further changes in economic conditions. Focus continues to be placed on customers, cost reduction and cash generation actions so that we are well positioned to meet the current challenges.

 

 

 

 

 

International operations

 

Because AkzoNobel conducts international operations, we are exposed to a variety of risks, many of them beyond our control, 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. Unfavorable political, social or economic developments and developments in laws, regulations and standards could adversely affect our businesses and results of operations. Political, economic and legislative conditions are carefully monitored. The Board of Management decides on the countries and industry segments in which AkzoNobel conducts its business.

 

 

 

 

 

Energy
pricing

 

Differences in energy prices pose a risk to the competitiveness of several of our chemical businesses.

 

We operate some energy intensive businesses. A non-level playing field for energy and emission trading rights can affect the competitive position of these businesses. We are pro-actively managing energy usage and costs. We operate several cogeneration units which enable us to make efficient use of combined heat and power. We are implementing our carbon policy, working on energy efficiency programs and investing in energy from waste and biomass. We have policies for energy contracts and have long-term purchase contracts in place.

 

 

 

 

 

Contributions to pension funds

 

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

 

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.

 

 

 

 

 

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 may be impacted by business interruption or product discontinuation at some of our key suppliers. 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. We have inventoried single and sole sourced raw materials and are actively pursuing plans to improve this situation. We have diversified contract length and 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.

Copyright © 2010 Akzo Nobel N.V.