Material risks and uncertainties

Risk assessments are performed at all levels in the organization and can focus on varying topics. Material risks for our Business Units and Business Partner functions are reported to our CEO twice a year via the Risk & Incident Report and are shared with the Executive Committee. In addition to this, the Executive Committee has a separate discussion on what the material risks for the Group are. These together form the basis for the risk disclosures below.

Our risk profile

The below list details the five most important short-term risks that might have material impact within three years and have the potential to prevent us from successfully implementing our strategy and achieving our targets, despite the mitigations in place. For each of these risks, the mitigating actions we are taking to reduce our exposure are described. These risks are labeled as top risks either because the exposure on dsm-firmenich’s EBITDA is an indicative €45 million or more, or because they have a major non-financial impact, such as on the company’s reputation.

Top risks and related mitigating actions

Risk description
Digital transformation
Having an integrated digital backbone is essential to implement efficient and robust business processes that meet the expectations of our customers. Therefore, successful execution of our digital transformation roadmap is important to deliver on our strategic and financial targets.

The implementation of this roadmap is complex. This, in combination with some resource constraints, means there is a risk that the digital transformation roadmap is not implemented according to plan or does not bring the full benefits as aimed for.

In the new operating model, the Business Partners have allocated dedicated resources to drive digitally-enabled process excellence. Furthermore, the capacity and capability in Digital & Tech are being strengthened.

The Group Investment Committee supports the Executive Committee to manage the project portfolio, set the right priorities and allocate resources accordingly.

All key projects are subject to quality reviews by a multi-disciplinary, independent team of experts at specific moments throughout project implementation.

Geopolitical instability
dsm-firmenich operates globally and could therefore be affected by geopolitical instability and related economic decline, such as:

  • Trade restrictions, raw material and energy shortages and supply disruptions, hampering our ability to supply our customers
  • Lower economic growth and declining disposable income impacting demand for our products
  • Inflation, putting pressure on our margins
Our business continuity management governance and processes are strengthened as part of the implementation of the new operating model. To reduce the impact of possible disruptions preventive actions are taken, such as reducing single-source positions, qualifying back-up manufacturing sites, optimizing safety stocks.

Continuous monitoring of possible disruptions in our supply chains enables us to act with speed as and when needed.

We hedge part of our exposure to purchasing price fluctuations and currency fluctuations.

In economic downturns, we have the flexibility to offer solutions to serve the changing needs of our customers and end-consumers.

Commodity markets
dsm-firmenich operates in highly competitive markets. There is a risk that some competitors may benefit from a lower cost position and where we cannot differentiate ourselves sufficiently, this could impact our sales volumes and margins.
We prioritize high-growth and higher-margin market segments. To address the needs of customers and end-consumers in these segments, we develop innovative products and services and offer differentiating value propositions. We use our wide-ranging expertise, our scientific, technical and data-driven innovation capabilities, and our broad portfolio of natural and renewable ingredients.

In all our Business Units we focus on maximizing operational performance and apply strict cost control.

We launched the vitamin transformation program to improve profitability, structurally reduce our exposure to price fluctuations, and deliver significant cost savings.

Talent availability
The success of dsm-firmenich depends on its employees, including - but not limited to - scientists, researchers, perfumers, flavorists, and experts in digital and data science.

In view of the tight labor market, the ongoing challenges of the macro-economic environment, and the demands associated with any major merger and integration process, there is a risk that we cannot attract, retain, develop, and engage the people with the required expertise, experience and mindset needed for the implementation of our strategy.

We successfully implemented the new operating model and organization and have launched our new purpose and values. Throughout the entire process we frequently connect with our employees to update them on the status of the integration and the challenges we face as a company. We answer their questions and address their concerns.

Building on this foundation, we are executing our plans for integrated rewards, people development, well-being, engagement, and Diversity, Equity & Inclusion.

We continue to monitor retention rates as well as employee engagement and take action as and when needed.

Cyber attack
As external cyber threats remain high, dsm-firmenich is exposed to the risk of cyber attacks. This could lead to discontinuity of operations and loss of integrity or confidentiality of information.
We are implementing a single, integrated cyber security framework, building on the strengths of both legacy companies and covering the domains of information technology, operations technology and R&D laboratory systems.

Since the ‘human firewall’ remains critically important, we have intensified our phishing tests to keep employee awareness high – something that is especially important during times of change.

To mitigate the impact of a potential cyber attack, we are strengthening our business continuity plans and disaster recovery plans.

Other important risks

In 2023, certain competition authorities commenced an industry-wide investigation into the fragrances sector. As part thereof, unannounced inspections were carried out at several Firmenich offices and Firmenich received a subpoena from the Antitrust Division of the United States Department of Justice. The company is fully cooperating with the authorities. The investigations are expected to continue at least until next year. As per the date of release of this Report, no further update on the status or outcome of the investigation is available. In addition, multiple lawsuits have been filed against the company in the USA and Canada relating to the investigation.

There are also more generic business risks, such as business continuity, sourcing, intellectual property, tax, changing legislation and regulations, and increasing non-financial reporting requirements. Our risk management framework is set up to adequately monitor and respond to these risks.

Information relating to sustainability risks, such as climate, biodiversity and water-related risks is disclosed in Climate adaptation and transition plans, Nature – In our Operations and the Sustainability Statements.

All relevant risks are taken into account in the preparation of our financial statements.

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