Risk management

Risk management is an essential part of the internal control system of the Group. The Company has defined the principles applied in the organization of the risk management. The purpose of risk management is to identify potential events that may affect the achievement of the Group’s objectives in changing business environment and to manage such risks to a level that the Group is capable and prepared to accept so that there is reasonable assurance and predictability on the achievement of the Group’s objectives. The risk management process of the Group is based on Enterprise Risk Management (ERM) framework of Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The Group’s risk management process involves assessing risks systematically by business unit, segment and Group function, improving risk management awareness and quality, sharing best practices and supporting cross-functional risk management initiatives. In order to systematize and facilitate the identification of risks they are categorized as strategic, operational, financial, and information risks. These categories are closely aligned with the strategic, operational, financial and compliance objectives of the Group.

Huhtamaki Group Enterprise Risk Management (ERM) Policy defines the objectives, scope and responsibilities of risk management. Compliance with the risk management policy assures timely identification and recording of risks and the application of relevant risk management measures to address these risks. More detailed risk management procedures are set forth in the Group’s ERM framework and process guideline.

The Audit Committee monitors the implementation of risk  management activities, and evaluates the adequacy and appropriateness of ERM. The Audit Committee reports regularly to the Board of Directors, which is responsible for reviewing the Group’s strategic, operational, financial and information risks. The Board of Directors approves the risk level that the Group is capable and prepared to accept and the extent to which risks have been identified, addressed and followed up.

The Group Executive Team is responsible for the adoption and deployment of the Group’s internal control principles and procedures relating to risk management. The risk management process includes systematic identification and assessment of risks in each business segment and their business units as well as at Group level. Risks are consolidated from the business unit to the segment level and from the business segment to the Group level. At each level risk treatment actions are defined  in order to reach acceptable risk levels. Execution and supervision of these risk treatment actions is a task of line management. Upper level line management always approves lower level risk mitigation actions and the risk level reached after implementation of such  actions. The Group Risk Management function monitors and reports the achievement of these actions. The purpose is to verify that risk treatment actions support the achievement of the Group’s strategic, operational, financial and compliance objectives. The Group Risk Management function monitors and reports the achievement of these actions. The purpose is to verify that risk treatment actions support the achievement of the Group’s strategic, operational, financial and compliance objectives.

The Group Risk Management function organizes, instructs supports, supervises and monitors risk management activities on an ongoing basis. The function also analyzes changes in the impact, likelihood and level of control for each identified business risk. It reports results of the risk management process to the Audit Committee annually. The Group risk management function also prepares reports to the business segment and Group management as well as the internal audit and the Auditor.

Business unit, segment and Group level risk management process and activities are engaged with the Group’s strategic planning and budgeting process. Risk management process may be commenced any time in the course of the financial year should a certain business area encounter essential strategic changes requiring initiation of the risk management process.

Risk review

Risk management at Huhtamaki aims at identifying potential events that may affect the achievement of the Group’s objectives. The  purpose is to manage risks to a level which the Group is capable and prepared to accept so that there is a reasonable assurance and  predictability regarding the achievement of the Group’s objectives. The aim is also to enable allocation of resources and risk  management efforts.

In order to systematize and facilitate the identification of risks they are categorized as strategic, operational,  financial and information risks. These categories are closely aligned with the strategic, operational, financial and compliance  objectives of the Group.

During 2016 the key risks identified in the 2015 risk assessment process were monitored to assess their  existing and newly implemented controls and any changes in the risk level itself. Actions to mitigate those risks were planned and executed at Group or segment level and followed by the Group Risk Management function on a quarterly basis with focus on each business segment’s most significant risks.

Parallel to the strategic planning and budgeting process, business units, segments and  Group functions identified and assessed business risks against their medium to long term objectives. These risk assessment results  were consolidated from business unit to segment and further to Group level and used to identify the key risks at segment and Group  levels. At each level from business unit to Group, risk treatment actions were subsequently defined to reach acceptable risk levels.  The acceptable risk levels associated with appropriate risk management efforts were approved by the Group Executive Team,  reviewed by the Audit Committee of the Board of Directors and finally approved by the Board of Directors. Agreed risk management efforts will be conducted and followed during 2017.

Price management and raw material and energy prices are considered among the most significant risks to the Group’s strategic and financial objectives. The prevailing macroeconomic instability increases volatility in raw material and energy prices that may affect the Group’s financial performance and thus increases the importance of efficient price management. Macroeconomic and political risks as well as growth and market position are also among the most important risks and opportunities to the Group’s strategic objectives.

Human resources risk, destruction of facilities and continuity of operations as well as product safety and quality risk are considered the most significant operational risks for the Group. Destruction of a major facility and thereby compromised business continuity could have a negative impact on business through decreased sales. Critical  shortcoming in product safety or quality could decrease sales as a result of potential reputation issues.

Foreign exchange translation and transaction risks remain among the Group’s twenty most important risks but decrease somewhat in ranking from 2015. More  information on financial risks can be found in Note 28 of the Annual Accounts 2016.

Variance between the assessed business impacts of the Group’s ten most important risks after risk treatment actions is relatively small. None of the identified risks are considered of a magnitude that could not be managed or would endanger the implementation of the Group’s strategy.

When considered necessary, appropriate risk treatment actions may also involve risk transfer by means of insurance. The Group maintains a number of global insurance programs. The need for insurance, including the adequacy of its scope and limits, is continuously evaluated by the Group Risk Management function. In 2016 the Group extended the scope and limits of its product liability and environmental liability  insurances and purchased a cyber risk insurance.

The Group invests in continuous improvement of property risk control and business continuity management. In 2016, a fire protection concept within the Group property risk control program was established for the Flexible Packaging segment, setting a common standard and action plans for all the segment’s business units. Additionally in terms of efforts to improve business continuity management, the Foodservice Europe-Asia-Oceania and Molded Fiber segments have conducted business impact analyses including improvement actions in all their large and medium sized business units.