Operational Risk Management

1. Operational Risk Management Managing operational risks in an Industrial Environment Jo Willaert- Corporate Risk Manager PRMIA - BELRIM 18 September 2014

2. Organisation Agfa-Gevaert Group Parent Company Corporate Centre Agfa Specialty Products Agfa Graphics Agfa HealthCare

3. Agfa in the world HealthCare No 1-2 Prepress No 1-2 Other • Sales organisations in 40 countries • Representations in 100 countries • Manufacturing sites in 10 countries

4. Agfa Graphics: product portfolio Software Computer-to-Film Film Film setter Analog Plates Offset Press Computer-to-Plate Plate setter Digital Plates Thermal, Polymer & Silver Proofing Flexo Printing PC Flexo Plates Flexo Press Flexo CTP Screen Printing Screen Press Screen exposure frame Screen Digital Inkjet Print Industrial Inkjet Printing Scanner Ink

5. Agfa HealthCare: product portfolio radiology PACS CR NX workstation CR Digitizer Reusable Phosphor plate Dry Imager Dry Film Conventional X-ray Film Processor Conventional Radiography X-ray Table X-ray Film Softcopy DR-GenRad DR CTMRI US NM PET Hardcopy Scanners

6. Agfa HealthCare: digital workflow in radiology CR & DR on Musica

7. Agfa HealthCare: IT solution portfolio The HealthCare Community Referring Physicians Assisted Living Home Care Pharmacists Payors Administration Billing Planning Reporting Accounting Electronic Patient Record Treating Examining Resource Management Diagnosing Catering Logistics Emergency Room Nursing Intensive Care Surgery Intensive Care Laboratory Cardiology Radiology

8. Agfa Specialty Products: product portfolio • Classic Film • Functional Foils • Advanced Coatings and Chemicals

9. Enterprise Risk Management Design of an ERM-Program in an Industrial Environment Jo Willaert- Corporate Risk Manager PRMIA - BELRIM 18 September 2014

10. Design of an ERM-Program in an Industrial Environment • Why? • To reduce the volatility of the performance of the group • To safeguard business continuity • When? • Started in 2003 • Not regulated, so flexibility in set up the ERM-program • Agfa’s ERM-Program design is not unique, is based on what was available in the literature at that time but is adapted to the culture and goals of the group. • It’s how Agfa did it, there are many other ways to organize ERM.

11. Design of an ERM-Program in an Industrial Environment • Mission Statement of the ERM-Process ERM (Enterprise Risk Management) is the process whereby the risks related to the group’s activities are methodically assessed in order to avoid the negative consequences of the events that might push the company’s performance below expectations

12. Design of an ERM-Program in an Industrial Environment • Responsibilities • Group’s Management • Risk Owner • Risk Manager • Internal Auditor versus Risk Manager within the ERM-process

13. Design of an ERM-Program in an Industrial Environment • Responsibilities • Group’s Managementdefines and monitors risk policies in accordance with the company’s global strategy • Defining the company’s policy regarding Enterprise Risk Management • Defining internal audit planning by allocating audit resources in accordance with the risk management process • Defining the goals end objectives within Enterprise Risk Management • Monitoring the various ERM-programs • Setting of priorities in rolling out the risk management initiative

14. Design of an ERM-Program in an Industrial Environment • Responsibilities • Risk Owner • Person with the authority to manage the risk, to make the necessary decisions to keep the risk within the agreed boundaries.

15. Design of an ERM-Program in an Industrial Environment • Responsibilities • Risk Manager overviews the ERM-process • Overview of risk management activities in all risks • Support, guidance and best practice to the risk owners • Evaluation of adequacy of risk management methods used by the risk owners • Preparing/endorsing periodical risk management reporting • Ensuring adequate follow-up of the audit recommendations • Link between risk owners, Internal Audit and Management

16. Design of an ERM-Program in an Industrial Environment • Responsibilities • Internal Auditor versus Risk Manager within the ERM-process • Internal Auditor reviews that the internal contracts are operational and that they have the expected result • Risk Manager provides support and makes sure that all significant risks are identified and evaluated

17. Design of an ERM-Program in an Industrial Environment • What needs to be done? • Objective setting (objectives, indicators, opportunities, frame) • Inventory (Identification of every significant risk and its respective owner) • Determine the risk tolerance of the group • Determine the risk appetite of the board • Measure and prioritize each risk • Action plan • Systematic and Formal Control and Follow Up

18. Factor Score Description Risk Evaluation (gross risk score) Probability 1 2 3 4 5 Extremely rare: only in extreme circumstances Rare: every 10 – 25 years Periodic: every couple of years Recurrent: yearly Occurs frequently: can occur more than once Potential Severity 1 2 3 4 5 Less than € 10,000 € 10,001-€ 100,000 € 100,001-€1,000,000 € 1,000,001-€ 10,000,000 Over €10,000,000 Time-to-Impact 1 2 3 Occurs over a long period of time providing opportunity to adjust or react Occurs quickly, limited advance warning (days / weeks)  Occurs suddenly - no advanced warning - no time to react

19. Adequacy Factor Score Description RISK MINIMIZING MEASURES times gross risk score = NET RISK SCORE Insurance 1 0,75 0,50 No insurance available Partial insurance available Fully insured Preventive Measures (before event) 1 0,75 0,50 No preventive measures available Partially effective preventive measures available Fully effective preventive measures available Reductive Measures (after event) 1 0,75 0,50 No reducing measures available Partially effective reducing measures available Fully effective reducing measures available Audit Procedures 1 0,75 0,50 No audit procedures available Partially effective audit procedures available Fully effective audit procedures available

20. Design of an ERM-Program in an Industrial Environment . FINANCIAL RISKS Financial market risks Currency / foreign exchange fluctuations Asset values Credit default Liquidity cash flow issues STRATEGIC RISKS Market demand Customer / industry changes Intellectual capital Research & development Image and reputation M&A / Joint Ventures Channels and networks OPERATIONAL RISKS Information systems Accounting / control system Key managers Regulatory environment Supply chain HAZARD RISKS General / Public Liability Property damage Employee injury (WC, EB, EPL) Natural disasters Business interruption 7 - 8

21. Design of an ERM-Program in an Industrial Environment Core roles: Internal Audit Core Role: Risk Management Core Roles: Line Management

22. Design of an ERM-Program in an Industrial Environment • Threats & Pitfalls • Too much, too fast, too much details • Accumulation of non-significant risks • Risk Owner’s limited knowledge of consequences of risks in other processes • Risk Ownership (= decision making) often confused with execution responsibility and/or hierarchical position. • Lack of communication / co-operation between different departments • Lack of support / commitment of senior management • Not equal part of yearly objectives/personal targets

23. Design of an ERM-Program in an Industrial Environment • Conclusion • No entrepreneurship without risks • Risks are opportunities, challenges versus threats, obstacles. • ERM is a methodology, Risk Management is an attitude, a mind-set • ERM should focus on: • Economical reality • Budget reality • Culture of the group • Credibility

24. Design of an ERM-Program in an Industrial Environment • Advice based on own experience • Before starting ERM-project: • be sure you have the full support of the board • be sure you know company’s culture • start with the very high risks only • communication is listening in the first place • patience is a virtue