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In our 2012 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, we consider the top 5 risks as communicated in the Annual Report of 2012 still to be valid. |
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Risk |
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Risk description |
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Risk corrective actions |
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Attraction and |
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Our ambitious growth plans may not be achieved if we fail to attract and retain the right people. |
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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 motivating them and developing their capabilities. As part of this drive, we are stepping up our actions to strengthen our corporate identity and to build a functionally excellent One HR organization focused on best-in-class talent management. Our ultimate goal is to be recognized internally and externally as the employer of choice. To achieve this, we have a number of priority focus areas including professionalizing recruitment, improving our talent management processes and harmonizing key HR administration processes to provide efficient service and free up time for the business partnering that is crucial to helping us attract, develop and retain superior people. In addition, as part of the overall performance improvement program, we have set up the AkzoNobel Academy. This is specifically focused on building capability across the company and, in particular, at providing a higher level of general leadership, project and change management skills, as well as creating a consistent approach to specific functional capabilities. |
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Management |
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We undertake various restructuring, investment and performance improvement projects that require significant change management and project expertise. Failure to manage these change projects appropriately, or to implement such projects, may lead to inability to achieve our strategic ambitions. |
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Risk management is an integral part of project management excellence. Senior management is involved in all critical projects that are prioritized and supervised by the Executive Committee to ensure an aligned and integrated vision and thrust from the top for the company’s change agenda. Major initiatives, such as the performance improvement program and business restructuring projects, are under the direct supervision of dedicated Executive Committee members. Furthermore, we have included project management and change management curricula in our AkzoNobel Academy. |
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Worsening |
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One of the principal uncertainties continues to be the development of the global economy. The global economic conditions remain fragile and it is difficult to predict customer demand and raw material costs. Construction and housing markets are expected to remain soft in mature markets and our Decorative Paints business in particular has been affected by the market downturn. The likelihood of a European sovereign crisis may have decreased but the chronic fiscal imbalances may further adversely impact the global, regional or national economies in markets where we operate. Failure to adapt adequately and in time can be harmful to our business and results. |
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As mentioned during our Strategy Update in February 2013, we are accelerating our comprehensive performance improvement program to deliver €500 million EBITDA. This is based on functional and operational excellence. Around 40 percent of the anticipated benefits will come from programs to decrease complexity and to optimize the supply chain, and a further 50 percent from margin management, research and development initiatives and business restructuring programs. These benefits will accrue across our Business Areas. We continue to apply various scenarios for planning and budgeting to be best prepared for further changes in economic conditions. |
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International |
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We are a global business with operations in more than 80 countries. Therefore, we are exposed to a variety of risks, many of them beyond our control. Unfavorable political, social or economic developments and developments in laws, regulations and standards could adversely affect our business and results of operations. Our aspirations to fuel growth in high growth markets will further expose us to these risks. |
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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. We have also set up a dedicated Middle East organization responsible for all AkzoNobel business in the countries belonging to the region. |
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Cash flow |
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The potential for further deterioration of economic conditions may have an impact on the free cash flow generation of our businesses. Furthermore, we are potentially exposed to funding of pension schemes. This may lead to insufficient free cash flow generation to support funding for the implementation of our strategic agenda. |
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Our balance sheet and debt profile are strong. We continue to deliver on our comprehensive performance improvement program to achieve €500 million EBITDA and we will engage in restructuring of underperforming parts of our portfolio if deemed strategically appropriate. We have a prudent financing strategy and a strict cash management policy, which are managed by our centralized treasury function (see Note 22 in the Financial statements of the 2012 Annual Report). |