Principal risks and uncertainties

Risk description

It is our intention to transform AkzoNobel into two separate businesses. This process will have an impact on all our stakeholders, assets, systems and the legal framework of the company. We need to address issues associated with the separation of the businesses – under different scenarios, as well as the strategies of the businesses going forward.

Risk corrective actions

• Within an umbrella project, we have created work streams to execute the operational separation of Specialty Chemicals from Paints and Coatings and to embark on a dual track M&A process
• We have teams of experts addressing all key areas of attention and identifying the major risks of the separation. It is their assignment to allocate talent and resources to both businesses in a transparent and equitable way. Simultaneously, a dedicated team is in charge of managing the M&A trajectory of Specialty Chemicals
• Paints and Coatings continue to work on their standalone strategy
• A communication plan is in place to inform our external and internal stakeholders about the progress of our work

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 in its major markets, as well as in several specific end-user segments. The effects could lead to a decline in demand, deteriorating financial results, impairments and book losses, which in turn could result in the company not realizing its financial guidance.

Risk corrective actions

• Continue our strategy to bring down our operational cost base and reduce complexity
• Leverage our Global Business Services organization to further standardize core functional processes in all regions
• Further deploy our 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 select number of scenarios, dealing with geographical or segment slowdowns
• Expand our innovation capabilities to develop and deliver faster differentiated customer value propositions

Risk description

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 geo-political, social or economic developments and developments in laws, trade policies, regulations and standards could adversely affect our business, the value of our assets and results of our operations. Our ambition to grow the business in a balanced way across the globe will further expose us to these risks.

Risk corrective actions

• 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
• Decide all significant investments, and the countries and industry segments in which AkzoNobel conducts its business, via the Executive Committee
• Benefit from our combination of country organizations and service centers in order to address country-specific and local business risks
• Combine the implementation of international compliance standards with local transparency and accountability

Risk description

The accumulation of strategic moves in relevant value chains (horizontally and/or vertically) may impact our competitive position and/or increase the vulnerability of operations.
Further consolidation can negatively impact the landscape for strategic acquisitions in terms of their availability. This will result in higher multiples for acquisitions and make deals economically unattractive or synergy targets more difficult to achieve.

Risk corrective actions

• Continue our regular competitive intelligence analysis of strategic moves of (new) competitors, customers and suppliers
• Further strengthen our merger and acquisition and integration capabilities
• Enhance the pipeline of viable market and technology opportunities for mergers and acquisitions, focusing on strategic rationale with respect to the value chain
• Finalize and implement our digital strategy to anticipate future changes and drive for new sources of value

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
• 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
• Further extend our hedging strategy based on risk analysis and market developments

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

• Implementation of our Business Partner Compliance Framework
• 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
• Continue to embed company-wide standard setting and compliance awareness through activities and training programs, including training on the Code of Conduct

Risk description

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 loss of our leadership positions, and adversely affect our business.

Risk corrective actions

• Advance our technology roadmaps and innovation strategies with appropriate research and development spend. In 2016, this amounted to 2.6 percent (€363 million) of total revenue
• Bring to market suitable new technologies using our innovation core process to assess market needs and relevant know-how
• Enhance our global open innovation capability to identify, assess and acquire the most recent promising technologies
• When applicable and appropriate, invest in venture funds
• Explore acquisitions of/partnerships with innovative startup companies