Principal risks and uncertainties

In our 2017 Annual Report we have extensively described our risk management framework and the major risk factors which may prevent full achievement of our objectives within the forthcoming three to five years, as well as beyond the five-year time horizon. This included risks related to the separation of Specialty Chemicals. In the meantime we successfully concluded the separation process with the announced sale of the Specialty Chemicals business to The Carlyle Group and GIC. The transaction is expected to be completed before the end of 2018, subject to customary closing conditions, including the relevant regulatory approvals and consultation with the relevant employee representative bodies.

Overall, we consider the medium-term and long-term risks as communicated in the Annual Report of 2017, including the five medium-term risks assessed to increase, still to be valid. Please refer to our website for our Annual Report of 2017.

Risks assessed to increase in the 2017 Annual Report

Sourcing of raw materials and energy

Risk description

Prices for key raw materials and energy can be volatile, are affected by economic conditions and regulations and have a direct impact on margins. In addition, there is a non-level playing field on a global level (e.g. shale gas, national policies, subsidies), which affects our competitive position.

Mitigating actions

  • Our procurement sourcing processes (ALPS Source) and organization are designed to actively leverage the cost, quality and delivery of raw materials and energy, including the performance of suppliers. This includes managing the risks related to single sourced materials, demand forecasting and margin-impact assessment
  • Our Supplier Sustainability Program is embedded in our sourcing strategy, selection and management process to ensure compliance of critical suppliers, while also driving continuous improvements. We are also active in several industry groups

Information Technology

Risk description

The company’s longer term IT strategy means we increasingly rely on fewer consolidated critical applications, including industrial process control systems. As the number of digital exchanges of business transactions is increasing, the non-availability of IT systems, or unauthorized access can have a direct impact on our business processes, competitive position and reputation.

Mitigating actions

  • Focus on measures such as redundant design, back-up processes, virus protection, anti-spoofing, advanced forensic scanning and mission critical infrastructure support
  • Centrally monitor access control processes and identity and access enhancements
  • Improve and test end-user awareness and behavior via cyber-security campaigns and e-learning
  • Roll-out of the new IM security standard for industrial control systems to all manufacturing locations
  • Further test and improve IT security response and incident management process

Complying with law and regulations

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.

Mitigating actions

  • Implementation of 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 an transparent culture, continuously educating and training 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 Code of Conduct

Attraction and retention of talent

Risk description

Ensuring continued alignment between a rapidly evolving business environment and qualifications, capabilities and talent of our workforce across the globe is an increasingly complex process. At the same time, it determines to a large extent the success of our organization.

Mitigating actions

  • Strengthen AkzoNobel’s employee value proposition, based on the company purpose and brand
  • Further improve talent and succession action planning
  • Fully embed leadership behaviors in our Performance and Development Dialog annual appraisal
  • Deploy the AkzoNobel Academy to the full extent

Management of change

Risk description

To support the implementation of our strategy, we continue to implement important changes in our operating model across the entire company.

Mitigating actions

  • Focus on core principles and values to set desired behavioral changes in motion
  • Embed project and change management in the curriculum of the AkzoNobel Academy
  • Roll out principles of commercial excellence in all levels of the organization
  • Combine sales and marketing under the responsibility of the Chief Operating Officer
  • Accelerate the adoption of a new organizational model through the creation of a Planning and Transformation Office
  • Continue the journey of creating fit-for-purpose support functions to drive synergies and standardization and leverage expertise at a company-wide level

Board of Management’s statement on the condensed half-year 2018 financial statements and the interim management report.

We have prepared the half-year financial report 2018 of AkzoNobel, and the undertakings included in the consolidation taken as a whole, in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Dutch disclosure requirements for half-yearly financial reports.

To the best of our knowledge:

  1. The condensed financial statements in this half-year financial report 2018 give a true and fair view of our assets and liabilities, financial position at June 30, 2018, and of the result of our consolidated operations for the first-half year of 2018.
  2. The interim management report in this half-year financial report 2018 includes a fair view of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Act on Financial Supervision.

Amsterdam, July 18, 2018
The Board of Management

Thierry Vanlancker
Maarten de Vries