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 2018, we validated the continued importance of our 13 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 2018. These will be updated annually in line with our Integrated Annual Report.

Principal Risk: Environmental: Climate, carbon, plastics, waste and water

Risk

Failure to reduce our environmental footprint and to meet stakeholders’ expectations, particularly relating to climate change, water availability, packaging waste and sustainable agriculture.

Potential Impact:

  • Long-term damage to our license to operate
  • Losing our ‘seat at the table’ to contribute to legislation related to environmental and social sustainability
  • Increased cost of doing business
  • Loss of consumer base

 Key mitigations:

  • Energy management programmes and transition to renewable and clean energy
  • Water reduction and waste water treatment programmes, as well as support for water stewardship initiatives in water-risk areas
  • Packaging waste management and World

Without Waste global programmes

  • Partnering with local and international NGOs

on common issues such as nature conservation, water stewardship and packaging recovery

  • Partnering with local communities, start-ups and academia to minimise environmental impacts
  • Focus on sustainable procurement
  • Commitment to the Task Force on

Climate-related Financial Disclosures (TCFD) recommendations 

Link to material issues

  • Carbon and energy
  • Packaging, recycling and waste management
  • Sourcing
  • Water stewardship

 Risk Status

Increasing

 

Principal Risk: Consumer health and wellbeing

Risk

Failure to adapt to changing consumer health trends, public health policies addressing misconceptions about our formulations, sugar and 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 and expansion to a total beverage portfolio
  • Expand our range of low- and no-calorie beverages
  • Introduce smaller 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

  • Marketing
  • Nutrition
  • Product quality and integrity

Risk Status

Decreasing

Principal Risk: Cyber incidents

Risk

A cyber-attack or data centre failure resulting in business disruption, or breach of corporate or personal data confidentiality.

Potential Impact:

  • Financial loss
  • Operational disruption
  • Damage to corporate reputation
  • Non-compliance with data protection legislation (e.g. GDPR)

Key mitigations:

  • Implement a cyber-security and privacy control framework and monitor compliance
  • Safeguard critical IT and operational assets
  • Detect, respond and recover from cyber incidents and attacks
  • Foster a culture of cyber-security
  • Monitor threat landscape and remediate associated vulnerabilities

Link to material issues

  • Economic impact

Risk Status

Increasing

Principal Risk: Foreign exchange and commodity prices

Risk

Foreign exchange and commodity exposure arise from changes in exchange rates and commodity prices.

Currency devaluation, in combination with capital controls, restricts movement of funds and increases the risk of asset impairment.

Potential Impact:

  • Financial loss
  • Increased cost base
  • Asset impairment
  • Limitations on cash repatriation

Key mitigations:

  • Treasury policy requires the hedging of 25% to 80% of rolling 12-month forecasted transactional foreign currency exposure
  • Hedging beyond 12 months may occur in exceptional cases subject to approval of Group CFO
  • Treasury policy requires the hedging of rolling three-year commodity exposures; different policy limits apply for each hedge-able commodity
  • Derivative financial instruments are used, where available, to reduce net exposure to currency and commodity price fluctuations

Link to material issues

Economic impact

Risk Status

Decreasing

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 availability of our portfolio and overall profitability

Key mitigations:

  • Enhance our key account capabilities to partner and grow with top customers
  • Work closely with our immediate consumption channel customers to drive incremental transactions
  • Accelerate RED execution to support our commitment to operational excellence
  • Develop our digital and e-commerce capabilities to capture opportunities associated with existing and new distribution channels

Link to material issues

  • Economic impact

Risk Status

Stable

Principal Risk: People attraction

Risk

Inability to attract and retain sufficient numbers of qualified and experienced employees in highly competitive talent market.

Potential Impact:

  • Failure to achieve our growth plans

Key mitigations:

  • Upgrade our Employer Value Proposition and

Employer Brand

  • Develop leaders and people for key positions internally, improve leaders’ skills and commitment for talent development
  • Create shared value with the communities in which we work to ensure we are seen and considered as an ethical business with an attractive purpose
  • Expand talent pool by hiring more diverse workforce

Link to material issues

  • Employee wellbeing and engagement
  • Corporate citizenship
  • Human rights and diversity

Risk Status

Increasing

 

Principal Risk: People engagement

Risk

Inability to ensure ongoing engagement and commitment of our workforce.

Potential Impact:

  • Failure to achieve our growth plans

Key mitigations:

  • Promote operational excellence and remove barriers to performance
  • Measure culture and engagement, and address findings through continuous listening to our people
  • Improve wellbeing of employees
  • Improve leaders’ skills to enable, engage and energise employees sustainably
  • Promote inclusive environment that allows all employees to realise their full potential 

Link to material issues

  • Employee well-being and engagement
  • Human rights and diversity 

Risk Status

Stable

 

Principal Risk: Declining consumer demand

Risk

Volatile and challenging 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 and 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

Link to material issues

  • Economic impact
  • Corporate citizenship

Risk Status

Stable

Principal Risk: Discriminatory taxes

Risk

Regulations on consumer health, government misconceptions relating to formulations and the risk of being a target for governments and interest groups to introduce discriminatory taxation (e.g. sugar) and packaging waste recovery taxation.

Potential Impact:

  • Reduction in profitability

Key mitigations:

  • Proactively working with governments and regulatory authorities to ensure that the facts relating to formulations are clearly understood and that our products are not singled out unfairly
  • Retain our ‘seat at the table’ by demonstrating that we are a responsible and sustainable business
  • Engaging with various stakeholder groups including NGOs and the communities in which we operate to deliver our 2025 sustainability commitments

Link to material issues

  • Economic impact

Risk Status

Stable

Principal Risk: Quality

Risk

The occurrence of quality/food safety issues, or the contamination of our products across our diverse total beverage portfolio.

Potential Impact:

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

Key mitigations:

  • Stringent quality/food safety processes in place to minimise the likelihood of occurrence
  • Early warning systems (Consumer Information Centres and social media monitoring) that enable issue identification
  • Robust response processes and systems that enable us to quickly and efficiently deal with quality/food safety issues, ensuring customers and consumers retain confidence in our products

Link to material issues

  • Product quality and integrity 

Risk Status

Stable

Principal Risk: Ethics and compliance

Risk

We operate in some complex markets with high levels of perceived corruption. As a result, we are exposed to an increased risk of fraud against the Company as well as to the risk of Anti-bribery and Corruption (ABAC) fines or sanctions if our employees or the third parties we engage to deal with government fail to comply with ABAC requirements.

Potential Impact:

  • Damage to our corporate reputation
  • Significant financial penalties
  • Management time diverted to resolving legal issues
  • We may suffer economic loss because of fraud and reputational damages, fines and penalties, in the event of non-compliance with ABAC regulations by our employees or by third parties representing us with government

Key mitigations:

  • Annual ‘Tone from the Top’ messaging
  • Code of Business Conduct (COBC), ABAC and commercial compliance training and awareness campaigns for our entire workforce
  • All third parties that we engage to deal with government on our behalf are subject to ABAC due diligence, and must agree and comply with our Supplier Guiding Principles
  • Cross-functional Joint Task Force in Nigeria and Russia that pro-actively addresses risks in the most challenging of our operations
  • Risk-based internal control framework and assurance programme with local management accountability
  • Periodic risk-based internal audits of ABAC compliance programme
  • Speak Up Hotline

Link to material issues

  • Corporate governance, business ethics and anti-corruption

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

Link to material issues

  • Economic impact

Risk Status

Stable

Principal risk: Health and safety

Risk

The risk of health and safety issues being ineffectively managed. This incorporates the management of third-party providers, particularly fleet and logistics.

Potential Impact:

  • Death or injury of employees, contractors or members of the public
  • Employee engagement and motivation
  • Attraction of talent/ prospective employees

Key mitigations:

  • Standardised programmes, policies and legislation applied locally
  • Group oversight by the Health and Safety (H&S) Team
  • H&S Board with the clear purpose to accelerate the H&S step-change plan implementation
  • Implemented the Behavioural-Based Safety Programme

Link to material issues

  • Employee wellbeing and engagement

Risk Status

Stable