Principal risks and uncertainties

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.

Execute our strategy to bring down our operational cost base and reduce complexity.
Continue the implementation of Global Business Services aimed at standardized core functional processes in all regions across the organization. Further deploy the commercial excellence programs to capture organic growth and offset the effects of decreasing economic growth rates.

We are a global business with operations in more than 80 countries. We are therefore 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.

Strategically spread our activities geographically and serve many sectors to benefit from opportunities and reduce the risk of instability. Carefully monitor the political, economic and legislative conditions across the company. All significant investments, and the countries and industry segments in which AkzoNobel conducts its business, are decided on by the Executive Committee. Country organizations are in place in order to mitigate country-specific and generic business risks.

An effect of AkzoNobel’s longer term Information Technology strategy is that our IT landscape is converging into fewer ERP systems and other critical applications. 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 effect on our production processes, our competitive position and the reputation of the company.

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.
A company-wide directive describing the rules regarding Information Management was issued in 2014.

The potential for further deterioration of economic conditions could have an impact on the free cash flow generation of our businesses. Furthermore, we are potentially exposed to additional funding of pension schemes. This may lead to insufficient free cash flow generation, which limits our strategic degrees of freedom.

Maintain a strong investment grade credit rating; our longterm senior unsecured debt rating is BBB+ by Standard & Poor’s and Baa1 by Moody’s. Focus on cash management is stressed in our monthly Operational Control Cycle meetings and relevant metrics are included in our remuneration policies. 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 governed by our centralized treasury function.

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

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.

Our success depends on the sustainable growth of our business through research, development and innovation. If we are not able to identify and adopt major transforming technologies in a timely manner, this may lead to the loss of our leadership positions and adversely affect our business.

Support continuous research and development through a spend of 2.5 percent (€363 million) of total revenue. Maintain the use of our detailed technology roadmaps, which assess relevant technological horizons and pathways to acquire and detail new technologies. Promote our global open innovation capability to identify, assess and acquire the most recent promising technologies.