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.

Our most important risk categories are macroeconomic and operational. Macroeconomic risks relate to the external environment and the markets in which we operate. We have less control over these risks than we do over operational risks such as product quality.

This overview of our most important risks 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. 

Our enhanced ability to aggregate and analyse risk, together with the enhanced role of the Group Risk Forum which now functions as a strategic “think-tank”, coupled with detailed discussions with the Operating Committee and the Board, led us to identify four existing business risks, for elevation to principal risks in 2015. These build on our 2014 principal risks and in summary they address the areas of sustainability, cyber security, business transformation and legal and regulatory compliance.

Please note, these are our principal risks for 2015. These will be updated annually in line with our Integrated Annual Report.

Principal risk: Breach of laws or regulations

Risk

Inadvertent non-compliance with the wide-ranging local laws and regulations that exist across our diverse mix of markets.

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 compliance training
  • Internal control assurance programme with local management accountability
  • Risk-based internal control framework (2015)
  • Speak Up hotline implemented (2015)
  • Legal function in constant dialogue with regulators

Risk universe

Legal and regulatory

Strategy

Community trust

Risk status

New business risk elevated in 2015 to a principal risk via a robust evaluation process

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.

Impact

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

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 universe

Business transformation

Strategy

Customer preference

Risk status

New business risk elevated in 2015 to a principal risk via a robust evaluation process

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, carbon emissions and water usage.

Impact

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

Key mitigations

  • Water stewardship programmes that are reducing our water consumption
  • 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

Risk universe

Sustainability

Strategy

Community trust

Risk status

New business risk elevated in 2015 to a principal risk via a robust evaluation process

Principal risk: Cyber attacks and system availability

Risk

Dependence on IT systems and infrastructure in our interaction with our customers, suppliers and consumers together with the protection of the data we have created, or that has been provided to us.

Impact

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

Key mitigations

  • Monitoring, identification 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 universe

Cyber security

Strategy

Customer preference

Risk status

New business risk elevated in 2015 to a principal risk via a robust evaluation process

 

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 switch to at-home consumption.

Impact

  • Reduced profitability

Key mitigations

  • Continued to increase our presence in the discounter channel during 2015 
  • Collaboration with customers to identify opportunities for joint value creation
  • Right Execution Daily (RED) strategy continues to support our commitment to operational excellence

Risk universe

Commercial and competition

Strategy

Customer preference

Risk status

No change

Principal risk: Consumer health

Risk

Failure to adapt to changing consumer health trends and addressing the misconceptions on the health impact of soft drinks.

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 no-calorie beverages
  • 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

Risk universe

Beverage category acceptability

Strategy

Consumer relevance

Risk status

Increased

 

Principal risk: Declining consumer demand

Risk

Challenging and volatile macroeconomic conditions can affect consumer demand. This includes political and security instability in Russia, Ukraine and Nigeria.

Impact

  • Eroded consumer confidence affecting spending
  • Inflationary pressures
  • Social unrest
  • Safety of people
  • Asset security

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

Risk universe

Political & security stability

Strategy

Customer preference

Risk status

Increased

Principal risk: Foreign exchange

Risk

Foreign exchange exposure arising from changes in exchange rates between the Euro, US Dollar, and other currencies in the markets we serve.

Impact

  • Negative EBIT impact

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 universe

Tax & treasury

Strategy

Cost leadership

Risk status

Increased

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.

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

Risk universe

Employee engagement & retention

Strategy

Community trust

Risk status

No change

Principal risk: Quality

Risk

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

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

Risk universe

Product quality & food safety

Strategy

Consumer relevance

Risk status

No change

 

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.

Impact

  • Termination of agreements, or less favourable renewal terms than currently experienced, 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 universe

Stakeholder relationships

Strategy

Community trust

Risk status

No change

Principal risk: Taxation

Risk

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

Impact

  • Reduction in profitability

Key mitigations

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

Risk universe

Legal and regulatory

Strategy

Community trust

Risk status

Increased