RISK MANAGEMENT

 

The risk appetite of Holland Colours is best reflected in our strategic ambition. Our main focus is to defend and grow our global market share in the market segments we serve with products that are close to our original core. In order to maintain a sustainable base for the long-term profitability of our company, we are looking for a year on year continuation of profitable growth. We do this in a variety of ways, including the selective extension of our technology base driven by in-house product innovation and/or third-party partnerships.

Furthermore, as is clear from the strategy, we will continue to foster business opportunities in adjacent product areas and market segments to apply our extensive color, additives and application knowhow in an effective and profitable manner.

Our strategy is well focused and stays close to our core of proven technologies and products, while also incorporating new market trends and innovations.

Our company culture is an important driver for the successful implementation of our strategy. Holland Colours is a partly employee-owned company with short, informal reporting lines and a strong focus on diversity. Our caring culture makes us effective in bridging the needs of the market with our technological and production capabilities on a global scale with a holistic approach: in our company, there is no room for ‘individualistic’ behavior.

Our divisions are responsible, in close cooperation with the central functions, for maintaining an effective risk and control environment as part of day-to-day operations.

The directors and controllers of the operating companies have signed a statement concerning compliance with the guidelines and procedures that form the basis for financial reporting and internal audits.

During the 2018/2019 financial year, no significant shortcomings were found in the internal risk management and control systems.

The company regularly evaluates its insurance cover, the premium it pays and the policy excess that applies.

In 2018/2019 we performed a bottom-up revision of our 5-year strategy with inclusion of divisional management teams and key sales & technology staff. An external consultancy firm guided us through our Product Market Combinations (PMC). For each PMC we discussed market potential and risk as well as the best fit/ adaptation for Holland Colours’ products and services.

We also continued to pay attention to cybersecurity as well as adherence to laws and regulations on data protection. Holland Colours implemented processes to ensure compliance with the General Data Protection Regulation (GDPR) when processing personal data.

Cybersecurity threats have become part of day-to-day life, including for Holland Colours. The risk of cybercrime is hard to judge with technology and fraud tactics changing rapidly. Holland Colours is updating relevant staff on a regular basis on the various types of fraud such as fishing mails and identity fraud.

We also installed anti-virus software and internet blockers to avoid access to un-safe internet sites and do follow up on advice from our 3rd party service provider based on their experiences in the field.

The remainder of this paragraph will summarize the risks identified in each key category:

  • Strategic
  • Compliance
  • Financial
  • Operational

 

STRATEGIC

These risks refer to elements or trends that could hinder us in achieving our long-term strategic objective.

Our ability to defend and grow market share in B&C and Packaging depends on our ability to follow changes in market requirements and legislation

Changes in market requirements are ongoing both from an equipment (faster, more standardization) and a product compliance point of view (recycling, environmental legislation, FDA, REACH, NIAS). The risk is that Holland Colours is (or is perceived as being) too small to manage these challenges effectively.

This risk is mitigated by the fact that we supplement our product core with third-party complementary technology where needed. This is done in the form of trading products (mainly Asia) and manufacturing alliances (such as our long-term relationship with Gaypa from Italy). Overall, our global presence and strong relationships with key players in both the Packaging and B&C industries continue to be the drivers in defining our product portfolio. In order to protect our technology, we apply for patents where feasible.

This risk will continue to have full management attention with a clear focus on developing the right products and technologies. The appointment of a Chief Technology Officer in the Board of Management in July 2018 as well as the intention to create three new roles in the organization: Innovation Manager and Global Product-Market Managers for UHT Dairy and Packaging Additives are important steps.

Competitive behavior and market consolidation trends expose us to new challenges

We closely track the various dynamics in the competitive landscape. We see, for example, that global players are separating their colorants business or buying compounders or teaming up with others. This presents both challenges and opportunities for smaller players such as Holland Colours that have a global reach serving niche markets from a service-oriented approach. Additionally, apart from North America, we still see only limited concentration trends in our customer base. Nevertheless, there is an ongoing trend towards standardization of technology and machinery with convertors in the packaging industry. The impact of brand owners in this segment is also becoming increasingly prominent. As these trends are of a global nature, we manage this segment of our business on a global basis where it relates to strategy and product innovation. Lastly, we are experiencing the impact of supplier consolidation, which drives up the prices and costs of our raw materials. In almost all cases of short supply, we were able to reformulate our products and keep the customer satisfied. We have to offset the cost increase through higher sales prices.

Service – Our ability to act as a global partner providing local service depends on our business model

This relates to the risk of being a relatively small player with a global reach. As such, Holland Colours could be stretching its resources too thinly over the globe while at the same time not being effective in local markets. We believe that with the different go-to-market models we are spreading our risk and are well connected to local developments. In the North American region, we work with local sales offices. In Europe and Asia, we have dedicated sales representatives in the various countries, in some cases combined with dedicated distributors. For efficiency reasons, our product supply remains predominantly regional. From time to time, we evaluate the efficiency of the model and its elements and make changes where needed. In the 2016/2017 financial year, for example, we made the decision to close our wholly-owned China entity and continue with local business partners.

 

COMPLIANCE

These risks refer to insufficient know-how and measures in place for Holland Colours to properly handle the ever-changing local and international compliance requirements. Compliance is a broad area. We are focused on strictly managing the introduction process of (new) raw materials and product and production compliance in our risk assessment processes. In the packaging segment, we are subject to audits and reviews by our customers who certainly help to keep us well connected and aligned. Please refer to the Corporate Social Responsibility section for information on the measures in place to safeguard a safe working environment for our employees and actions in place to ensure our raw materials are sourced from respectable companies that adhere to good business practices.

At Holland Colours we take food contact very seriously

From a preventive perspective, we partner closely with our key customers in the interpretation of new regulations. As part of the strategy work, we gathered from interviews conducted by an external consultant within the industry that Holland Colours is typically well informed and that we are valued for our active approach to finding solutions. We achieve this by re-formulating products and/or changing our internal operations where needed. The latter may also be prompted by customer audits (mainly in packaging). Our manufacturing sites are ISO registered and subject to regular audits (except for our site in Richmond, Indiana, in the USA, which uses a self-imposed audit system).

We also have a structured approach to learning from any incidents that occur. The complaints registration and handling system has been given outstanding scores in many ISO audits for its structure and content. Complaints are discussed immediately by a Quality Assurance team consisting of Sales, Operations, Technical, and Quality Management with follow-up on the elimination of root causes. The topic of product compliance and complaints management is on the agenda of the divisional management team meetings while product liability risk is covered in the agreements with customers and suppliers and also insured via third parties.

 

FINANCIAL

Holland Colours continuously monitors elements that could jeopardize the financial health of the company. The risks that are part of our regular business operations (such as currency and credit risk) are listed in the Financial Risk Management section of the financial statements.

The financial risks related to the funding of the company are limited. We are debt-free with a stand-by credit line for incidental need.

 

OPERATIONAL

This refers to risks that originate in our operations which would prevent us from achieving our strategic objectives.

Effective scale-up and launch of new products is seen as a critical success factor at Holland Colours

We have incorporated the scale-up phase as an integral part of projects that relate to new product innovation. All global projects are subject to extensive review by our Chief Technology Officer and consequential approval by the Board of Management. Special attention is given to staffing and other needs during scale-up.

The preparation for market launch is now carried out under the direct supervision of the Global Marketing Director during the final phase of the product development project. Coordination between the project leader and Global Marketing Director already commences during the test marketing stage.

Succession planning is an issue that Holland Colours needs to address in a systematic way

It is of key importance, yet not easy for a company with the size and global reach of Holland Colours, to find and successfully on board new directors. This process has the full attention of both the Board of Management and the Supervisory Board. We clearly aim to retain long-term employees who know the business and can share the Holland Colours culture with new staff. The latter can, in turn, introduce new ways of working and new technologies, preferably with the know-how and patience of effective change agents.

Holland Colours strongly believes that proper project management is a key driver for success

As part of the strategy a project portfolio of global and divisional projects was created, aimed at sales growth and/or operational excellence. The risk of ineffective execution has been mitigated by installing a Project Management Office (PMO) combined with formal project management training. The project sponsor typically is a member of the divisional Management Team or the Board of Management and is responsible for drafting the project charter and the performance and progress review of the project. The PMO drives the production of regular project updates and ensures that bottlenecks are addressed and progress reviews are conducted by the relevant management teams. This process is invigorated as ‘Target and Initiative Management’ in the deployment of our strategy.

quote robThe company is a combination of high-tech and craftsmanship.



Coen Vinke, CEO Holland Colours NV