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
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.
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.
- 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
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.
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.
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.
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.
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.