The most significant strategic risks
Huhtamaki’s 2030 strategic priorities are to grow its business, drive competitiveness, develop talent and embed sustainability in everything it does. Huhtamaki views that the most significant risks and opportunities for growth arise from the macroeconomic environment. Continued uncertainty due to the impact of COVID-19 on the economy may impact consumer buying behavior, and thus demand for the Group’s products. Uncertainty on trade agreements, particularly post Brexit, as well as trade wars and political unpredictability may slow down investment and economic growth in impacted geographies. Another key risk to growth arises from the Group’s ability to hold and increase its market position while during and post pandemic the competitive environment is volatile and market dynamics are changing. Yet, these changes, together with certain changes in demand also present opportunities to build agile business models and grow in product categories that serve food delivery, casual at home entertaining and everyday convenience. Huhtamaki manages the risks by developing its range of product offering, allocating capital and resources carefully and diversifying investments geographically.
The key risks and opportunities to Huhtamaki’s competitiveness arise from its ability to manage prices effectively in the presence of aggressive competition, a rise in raw material pricing, it’s capability to meet customer demand for technology and digital solutions and its ability to benefit from its global position in terms of sales and sourcing. Activities to manage the threats and seize the opportunities involve cross-functional and cross-segment collaboration and active dialogue with the customers to develop ways to increase value and understand Huhtamaki´s competitive position. Furthermore, Huhtamaki’s competitiveness relies on the successful completion of its key projects as part of its World Class Management system. This is supported with good project governance and explicit accountability and responsibility structures.
To successfully reach its goals in talent development, the Group focuses on managing the risks and opportunities relating to leadership and human capital. These include developing the skills of leaders and managers, global and local talent pools and succession planning, and performance management activities that support a high-performing and diverse culture.
In terms of the Group’s sustainability ambition, the biggest strategic risks and opportunities arise from changes in consumer behavior and potential new environmental legal requirements on single-use products. The company’s future growth and success depend on its continued ability to predict and respond to changes and its ability to innovate and develop new sustainable products and solutions in a timely manner. Understanding consumers enables Huhtamaki to realize business opportunities in building long-term sustainable growth in partnership with its customers. On the other hand, negative media attention on plastics and single-use products which does not take into consideration the value of packaging within the broader sustainability context, may depress demand for Huhtamaki’s products.
Negative media attention may also drive governmental attitudes and legislation. To manage the threats, Huhtamaki is focused on driving an evidence-based discussion to deliver data on the value of packaging in terms of hygiene, food safety, food availability and food waste prevention. Furthermore, Huhtamaki actively tracks early stages of regulatory initiatives and potential regulatory changes so as to reflect these in the development and commercialization of its products and solutions.
Operational and financial risks
Huhtamaki’s ability to pass increases in the cost of raw materials and energy to the price of its products is considered one of the biggest operational risks and opportunities to the Group. The risk is managed by increased centralized purchasing by the business segments. Raw material and energy prices are monitored on an ongoing basis, and energy and material escalation clauses are included in contracts when possible.
Risks related to destruction of facilities and dis-continuity of operations, disruption in raw materials or energy supply as well as IT infrastructure, systems and applications, are important operational risks potentially impacting the business continuity of Huhtamaki. The company performs a continuous improvement program in property risk control, mitigating the impact and likelihood of hazards, such as fire, explosion, flood or windstorm, that may lead to property damage and business interruption. To minimize the impact of a potential business interruption, the company maintains and further develops its disaster recovery and business continuity plans and allocates manufacturing capacity to several locations. Huhtamaki is also renewing its ERP systems, modernizing business software and updating hardware.
Product safety and quality is a number one priority to Huhtamaki. While consistent high quality and safety in Huhtamaki’s products build a competitive advantage, a critical shortcoming in product safety or quality could negatively impact the company’s reputation resulting in a decrease in sales. The Group applies rigorous quality control processes in all its manufacturing operations and has formal trial processes for new products and materials. Quality and hygiene management systems, such as ISO 9001 and BRC, provide a solid base for securing manufacturing consistency.
Huhtamaki has made substantial investments into the production machinery serving its technology platforms. To mitigate the risk of its technology and machinery becoming outdated, inefficient or unfit for serving customer demand, the Group continuously monitors and anticipates long term needs for replacement investments. Huhtamaki is also actively working on strategic partnerships and M&A to secure a competitive advantage on new technology innovations. Foreign exchange transaction risk remains among Huhtamaki’s twenty most important risks and is slightly increased in 2020 versus 2019.
None of the risks identified in connection with the 2020 risk assessment are considered of a magnitude that could not be managed or would endanger the implementation of Huhtamaki’s 2030 Strategy.
When considered necessary, appropriate risk treatment actions may also involve a 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.