(Chapter on risk management as reported in the “Report by the Managing Board”
section of the Annual Report 2007)
The Managing Board is responsible for risk management in the company and has
designed and implemented a risk management system. The aim of the system is to
ensure that the extent to which the company’s strategic and operational
objectives are being achieved is understood, that the company’s reporting is
reliable and that the company complies with relevant laws and regulations.
The important risks identified, as well as the structure of the aforesaid risk
management system and aspects of its further development and implementation,
are discussed in the section on risk management that begins on page 33 of the
Annual Report 2007 and in a more general way in the section on risk
management that begins on page 78 of that report.
Risk assessments, internal letters of representation received from management
(all directors of business groups, corporate staff departments and regions),
regular management reviews, reviews of the design and implementation of the
company’s risk management system and reviews in audit committees are integral
parts of the company’s risk management approach. On the basis of these, the
Managing Board confirms that internal controls over financial reporting
provide a reasonable level of assurance that the financial reporting does not
contain any material inaccuracies, and confirms that these controls functioned
properly in the year under review and that there are no indications that they
will not continue to do so. The financial statements fairly represent the
company’s financial condition and the results of the company’s operations and
provide the required disclosures.
It should be noted that the above does not imply that these systems and
procedures provide absolute assurance as to the realization of operational and
strategic business objectives, or that they can prevent all misstatements,
inaccuracies, errors, fraud and non-compliances with legislation, rules and
regulations.
In view of all of the above, the Managing Board is of the opinion that it is
in compliance with best practice II.1.4. of the Dutch corporate governance
code, taking into account the recommendation of the Corporate Governance Code
Monitoring Committee on the application thereof.
As part of the mid-term evaluation of the Vision 2010 – Building on Strengths
strategy, the Managing Board updated the Corporate Risk Assessment. On the
basis of a list of potential risks as identified in risk reports from within
the company as well as from outside, a first assessment was made and top risks
were identified. Two risks identified at the launch of Vision 2010 were
reconfirmed: the ability to attract and retain the right people to fulfill the
company’s ambitions and the capability to turn the innovation efforts into
profitable business. The programs that were initiated in order to contain
these risks will be continued with vigor. The threat of deteriorating market
conditions for the existing product portfolio, amongst others through the
influence of low-cost countries, was also reconfirmed as a top risk. Ongoing
efficiency programs and initiatives to increase sourcing from low cost
countries are DSM’s response to these risks. The acceleration of the
implementation of Vision 2010 means that acquisitions and disposals have
become an even more important part of the strategy. Connected with this, the
related risks have of course also grown in importance. DSM’s well-tested
abilities in these fields will be used to the full and, if needed, will be
further reinforced to mitigate these risks as much as possible. Finally, the
speed of decision-making is seen as a risk. To manage this risk the company’s
steering model will be made more transparent and the entrepreneurial spirit of
its workforce enhanced.
In addition to these strategic risks, the currency and commodity raw
material/energy price risks remain of importance. Sensitivity analyses are
made in both areas and hedging actions are defined if appropriate.
On 1 January 2007, the Corporate Risk Management department was established.
It has the responsibility of maintaining the risk management system and
supporting the Managing Board and the operational units in its effective
implementation.
Throughout 2007, the focus continued to be on the implementation of the
Corporate Requirements. The aim of achieving compliance with these
requirements for all business groups by the end of the year was largely met.
The main exceptions concern those units that still have to convert to the
standard business processes supported by SAP software. These units were
allowed to postpone the implementation of certain requirements until after the
conversion. Exceptions were only allowed after Managing Board approval and on
condition that sufficient mitigating controls were implemented.
During the year under review, DSM’s risk management practices were compared
with those of a number of peers. The design and implementation of the risk
management system was also discussed with all DSM staff departments and
business groups. These reviews will be the basis for a multi-year risk
management plan setting out the priorities for the rest of the Vision 2010
period. In the plan, high priority will be given to the implementation of the
standard business processes in the remaining units; this will ensure sound and
efficient internal control of the goods and money flows.
