Principal risks and mitigations

Our strategic priorities - community trust, customer relevance, customer preference and cost leadership - provide the context for guiding us in the management of the risks faced by our business.

This overview of our most important risks, involving an assessment of the likelihood of occurrence and potential consequences, does not include all the risks that may ultimately affect our company. Some risks not yet known to us, or currently believed to be immaterial, could ultimately have an impact on our business or financial performance. We remain constantly vigilant to changes to our economic and regulatory operating environments, to ensure we proactively identify and evaluate new risks and understand threats to our business viability.  

For the reporting period to December 2016, we validated the continued importance of our 12 identified principal risks. This was done through our ongoing ability to aggregate and analyse risk, our functional collaboration and the think tank approach of the company's Group Risk Forum.

Please note, these are our principal risks for 2016. These will be updated annually in line with our Integrated Annual Report.

Principal risk: Consumer health

Risk

Failure to adapt to changing consumer health trends and address the misconceptions about the health impact of soft drinks.

Potential impact

  • Failure to achieve our growth plans
  • Damage to our brand and corporate reputation
  • Loss of consumer base

Key mitigations

  • Focus on product innovation
  • Expand our range of low- and zero-calorie beverages
  • Introduce smaller entry packs
  • Reduce the calorie content of products in the portfolio
  • Clearer labelling on packaging
  • Promote active lifestyles through consumer engagement programmes focused on health and wellness

Link to material issues

  • Health and nutrition
  • Responsible marketing

Risk status

Increasing

 

Principal risk: Foreign exchange

Risk

Foreign exchange exposure arises from changes in exchange rates, as well as currency devaluation in combination with capital controls, which restricts movement of funds and increases the risk of asset impairment.

Potential impact

  • Financial loss
  • Asset impairment
  • Limitations on cash repatriation

Key mitigations

  • Treasury policy requires hedging of 25% to 80% of rolling 12 month forecasted transactional exposure
  • Hedging beyond 12 months if forecast transactions are highly probable
  • Derivative financial instruments are used, where available and/or appropriate, to reduce net exposure to currency fluctuations

Risk status

Increasing

Principal risk: Climate, carbon and water

Risk

Failure to meet our stakeholders’ expectations in making a positive contribution to the sustainability agenda, particularly relating to climate change, packaging waste and water usage.

Potential impact

  • Long-term damage to our corporate reputation
  • Less influence in shaping the citizenship and sustainability agenda
  • Reduced profitability

Key mitigations

  • Water stewardship programmes that are reducing our water consumption, our footprint and assuring sustainable end-to-end water (from sourcing, using waste water treatment to the communities and other users and stakeholders)
  • Carbon and energy management programmes
  • Packaging waste management programmes
  • Partnering with NGOs and INGOs on common issues such as nature conservation
  • Partnering with local communities to minimise environmental impact
  • Focus on sustainable procurement

Links to material issues

  • Carbon and energy
  • Packaging, recycling and waste management
  • Sustainable sourcing
  • Water stewardship

Risk status

Stable

Principal risk: Channel mix

Risk

A continued increase in the concentration of retailers and independent wholesalers on whom we depend to distribute our products. The immediate consumption channel remains under pressure as consumers alter consumption habits.

Potential impact

  • Reduced profitability

Key mitigations

  • Continued to increase our presence in the discounter channel during 2016 
  • Working closely with our customers to identify opportunities for joint value creation
  • Right Execution Daily (RED) strategy continues to support our commitment to operational excellence, enabling us to respond to changing customer needs across all channels

Risk status

Stable

Principal risk: Declining consumer demand

Risk

Challenging and volatile macroeconomic, security and political conditions can affect consumer demand and create security risks across our diverse mix of markets.

Potential impact

  • Eroded consumer confidence affecting spending
  • Inflationary pressures
  • Social unrest
  • Safety of people
  • Security of assets

Key mitigations

  • Seek to offer the right brand, at the right price, in the right package, through the right channel
  • Robust security practices and procedures to protect people and assets
  • Crisis response and business continuity strategies

Links to material issues

  • Direct and indirect economic impacts

Risk status

Decreasing

Principal risk: Discriminatory taxation

Risk

Regulations on consumer health and the risk of the targeting of our products for discriminatory tax and packaging waste recovery.

Potential impact

  • Reduction in profitability

Key mitigations

  • Proactively working with governments and regulatory authorities to ensure that the facts are clearly understood and that our products are not singled out unfairly
  • Shaping sustainability agenda as it relates to packaging and waste recovery
  • Engage with stakeholders, including NGOs and the communities in which we operate, on strategies to protect the environment

Risk status

Increasing

 

Principal risk: Quality

Risk

The occurrence of quality issues, or the contamination of our products.

Potential impact

  • Reduction in volume and net sales revenue
  • Damage to brand and corporate reputation
  • Loss of consumer trust

Key mitigations

  • Stringent quality processes in place to minimise the occurrence of quality issues
  • Early warning systems (consumer information centres and social media monitoring) that enable issue identification
  • Robust response processes and systems to address quality issues, ensuring customers and consumers retain confidence in our products

Link to material issues

Product quality and integrity

Risk status

Stable

 

Principal risk: Regulatory changes

Risk

Inadvertent non-compliance by the Company or related third parties with local laws and regulations that exist across our diverse mix of markets.

Potential impact

  • Damage to our corporate reputation
  • Significant financial penalties
  • Management time diverted to resolving legal issues

Key mitigations

  • Annual ‘tone from the top’ messaging
  • Code of business conduct training and awareness
  • Anti-bribery policy and commercial compliance training
  • Internal control assurance programme with local management accountability
  • Risk-based internal control framework 
  • Speak Up hotline implemented 
  • Legal function in constant dialogue with regulators

Link to material issues

  • Corporate governance, business ethics and anti-corruption
  • Human rights and diversity

Risk status

Stable

Principal risk: People and talent

Risk

Inability to attract and retain sufficient numbers of qualified and experienced employees in competitive talent markets and inability to ensure their ongoing engagement and commitment.

Potential impact

  • Failure to achieve our growth plans

Key mitigations

  • Focus on developing leadership talent
  • Right people in the right positions across the business
  • Focus on employee engagement ensuring support for our values
  • Promote operational excellence
  • Create shared value with the communities in which we work to ensure we are seen as an attractive employer

Link to material issues

  • Employee well-being and engagement

Risk status

Increasing

Principal risk: System availability and cyber attacks

Risk

Business stoppage due to application or systems unavailability, or a loss of personal data, arising from data centre failure or other internal or external cyber threats and vulnerabilities.

Potential impact

  • Financial loss
  • Operational disruption
  • Damage to corporate reputation
  • Non-compliance with statutory data protection legislation

Key mitigations

  • Monitoring, identifying and addressing cyber threats and suspicious internal computer activity
  • Training on information management and the protection of information
  • Disaster recovery testing and building resilience into our cyber risk programme

Risk status

Increasing

 

Principal risk: Change management

Risk

Failure to effectively execute major business transformations, or performance issues with third-party providers that we deploy as part of our business transformation.

Potential impact

  • Under-delivery of expected transformation results
  • Disengaged employees
  • Reduction in profitability
  • Market confidence in our ability to deliver on strategy is weakened
  • Damage to corporate reputation

Key mitigations

  • Project plans and change management strategies in place
  • Board and Operating Committee conduct regular tracking of actual performance against the business case

Risk status

Stable

Principal risk: Strategic stakeholder relationships

Risk

We rely on our strategic relationships and agreements with The Coca‑Cola Company, Monster Energy and our premium spirits partners.

Potential impact

  • Termination of agreements or unfavourable renewal terms could adversely affect profitability

Key mitigations

  • Management focus on effective day-to-day interaction with our strategic partners
  • Working together as effective partners for growth
  • Engagement in joint projects and business planning with a focus on strategic issues
  • Participation in ‘Top to Top’ senior management forums

Risk status

Stable