Overview of the risk management systems
Principles of 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).
Risk management process and responsibilities
The Group’s risk management process involves assessing risks systematically by business unit, segment and Global 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, which is responsible for reviewing the Group’s strategic, operational, financial and information risks. The Board 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 GET 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 Global 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 Global 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 Global 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 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.
The most significant risks
Price management as well as raw material, energy price and other cost inflation are considered among the most significant risks and opportunities to the Group. Efficient price and cost management are vital in achieving the Group’s strategic and financial objectives. The Group takes the opportunity to leverage scale and share best practices to maintain profitability.
Changes in demand, consumer behavior and requirements on food packaging are raised among the most important risks and opportunities to the Group in the 2018 ERM assessment. Megatrends such as urbanization and sustainability create significant growth and innovation opportunities for the Group. Growth and market position are at risk if the Group fails to meet customer and consumer demand with its product and service offering, or production capacity. The Group manages these risks through innovation activities and investing in manufacturing capacity and capabilities, particularly in growth markets. Additionally, the Group actively pursues add-on and scale acquisitions across geographies to enhance its core business.
Macroeconomic and political risks continue to be among the important risks and opportunities for the Group. Economic growth is a key driver for organic and acquisitive business growth and performance. Political decisions may drive changes in the global and local economies and free trade agreements. Predicting such changes and their implications in business is high on the agenda.
Risks relating to human resources, destruction of facilities and continuity of operations, disruption in raw materials or energy supply as well as product safety and quality are considered the most significant operational risks for the Group. Destruction of a major facility or disruption in raw material supply and thereby compromised business continuity could have negative impact on business. Critical shortcoming in product safety or quality could decrease sales as a result of potential reputational issues.
Foreign exchange translation and transaction risks remain among the Group’s twenty most important risks with very little change in ranking from 2017. More information on financial risks can be found in Note 5.8. of the Financial statements 2018.
None of the risks identified in connection with the 2018 risk assessment 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 Global Risk Management function