Clariant recognises that profits, sustainable growth and competitiveness are generated by successful risk taking and that risk should be managed and controlled appropriately. Risk Management is not designed to stop people from taking risks but rather to help them to optimise the level of risk taken and encourage entrepreneurial behaviour. Risk is inherent in all our activities and it is essential that best practice for Risk Management is embedded in our core business processes.
Risk is inherent in all our activities. To achieve Clariant’s strategic goals, risks need to be taken successfully and managed and controlled appropriately.
Risk Management Framework
Clariant has defined Risk Clusters which basically follow the organizational structure. The Risk Management process (identification, assessment, management, monitoring and reporting) is adapted individually to the different Risk Clusters
• Business Units - Short Term risks
• Business Units - Long Term risks
• Service Units
• Large Projects
Workshops are held across the organisation and risks (both internal and external) that could potentially impact Clariant’s ability to meet its business objectives are identified and assessed. Appropriate treatment is taken. Material risks and respective proposed treatment including mitigation measures are reported to the next level and onward to the Executive Committee and Board of Directors.
Identified risks are entered into a risk inventory which is available to respective risk sponsors and action owners. The risk register is updated for emerging risks, closed risks are deleted from the risk inventory. Examples of the risk register are as follows.
1. Economic slowdown
The shape of the global economy is of enormous importance for the success of Clariant. A slowdown of the global economy, major regions or specific enduser markets could have a significant effect on customer demand and thus the profitability of Clariant.
• Continue and even accelerate lean management and cost saving programs
• Strategically spread business activities geographically and across market segments
2. Foreign exchange fluctuations
Clariant operates internationally and is exposed to foreign exchange risks arising from various currency exposures, primarily with respect to the euro and the US-dollar and to some extent the currencies of emerging countries. Foreign exchange risks arise when transactions are denominated in a currency that is not the respective subsidiary’s functional currency.
• To manage the foreign exchange risk arising from commercial transactions and recognized assets and liabilities Clariant uses spot transactions, FX forward contracts, FX options and FX swaps according to the Group’s foreign exchange risk policy.
• Currency exposures arising from the net assets of the Group’s foreign operations are managed primarily through borrowings denominated in the relevant foreign currency.
1. Value creation from acquired businesses
Clariant acquired several businesses in the year 2016. Careful integration and introduction of Clariant standards and processes is of utmost importance, failure may jeopardize benefits suggested in business case during due diligence. Culture and entrepreneurial spirit that made the acquired company successful might be destroyed e.g. fast response time, high service levels
• High management attention. Frequent townhall meetings. Ambassador network established.
• Adequate integration management by the integration teams steered and controlled through respective Steering Committees. Proper project management including weekly calls.
• Appropriate contingency plans in place and fast and decisive reaction in case of deviations.
2. Growing public concern about human health and environment and tightening regulation and standards globally
Clariant is subject to many rules and regulations as well as compliance standards. These include chemical industry, country, government and customer requirements as well as the European Union’s (EU) Regulations on Registration, Evaluation, Authorization and Restriction of Chemicals (REACH). Clariant uses certain compounds, of which some are hazardous to the environment and health, in product development programs and manufacturing processes. The company may be exposed to risks of policy changes and market trends, unless such are properly anticipated and mitigating actions developed.
• High Management attention. Clear and comprehensive management framework for Environment, Health and Safety as well as Product Stewardship.
• Proactive approach aiming to develop innovative processes and products to take the right steps to turn threats into opportunities. One example is the Clariant Portfolio Value Program, a sustainability program that drives continuous improvement of the product portfolio and allows to identify and strengthen opportunities for innovation and value chain collaboration.
The chemical industry is lagging behind in digitization compared with industries such as media, retail and telecommunication. Therefore, there is a risk to miss out on the business opportunities that digitization can create by offering new, innovative ways to meet customer needs.
• Putting digitization as a focus for innovation and offering new solutions, for example VERITRAX, the intelligent chemical management system for oil and gas producers.
• Anticipating digitization in personal and business processes.
4. Ability to follow trends and customers
The ability to follow or even forecast trends and customer needs is crucial for success. For instance, there is a shift from rigid to flexible, from solid to liquid, from colored materials to labels in the packaging industry, the circular economy requires new recycling solutions, and has in impact on the success of the Business Unit Masterbatches.
• Close collaboration with the customer to systematically develop proposals for new product launches.
• ColorForward initiative focusses on market trends, ColorWorks develops new appearance and functionality innovations.
• Consequent and vigorous use of Clariant Innovation Excellence.