Innovation at Coca-Cola Amatil

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2 Innovation at Coca-Cola Amatil 2

3 Enterprise Risk Management for Extreme Events, a Corporate View Michael Braude General Manager Treasury, Risk & Insurance Andrew Wearne Chief Risk Officer Coca-Cola Amatil

4 Agenda Introduction to CCA and its business operations CCA s Risk Management Structure Risk Identification and Quantification Determination of Risk Tolerance and Risk Appetite Management of Major Risk Related Events Selling Risk to the Insurance Market Q&A 4

5 Introduction to Coca-Cola Amatil Top 5 global Coca-Cola bottler 15,000 employees Publicly listed Australian company (ASX top 30) 2012 net profit after tax A$0.56b Key CCA Facts A$10b market capitalisation (based on A$13.05 /share) 2012 revenue A$5.1b Approx 30% owned by The Coca-Cola Company (TCCC) 5

6 CCA Warehouses and Production Facilities CCA at a Glance as at 31 December warehouses are not marked but are geographically spread across Indonesia SPCA has additional manufacturing equipment in Thailand and Spain (copacking arrangement) and utilises third party packaging arrangements in China 6

7 Major Products and Brands NON-ALCOHOLIC BEVERAGES FOOD & SERVICES PRODUCT & PACK INNOVATION UNDERPINS STRONG MARKET POSITION GV Milk Strong Coffee Glaceau Low Cal Mother fuel cap Powerade Fuel+ ALCOHOLIC BEVERAGES Mt Franklin Super Lightweight Easy- Crush bottle Powerade 600ML Silver Charge 7

8 CCA Risk Management Structure CCA Board Audit and Risk Committee Group MD Group CFO Chief Risk Officer GM Treasury, Risk & Insurance Operational Risks, Audit, Fraud & Security Financial Risks, Liquidity and Insurable Risks 8

9 Risk Identification and Quantification Top down Managements view Bottom Up Risk Measured in the business Group Risk Map Workshop with Senior Management Every 6 months Action Plans created Key risks only Country level and Group Identify the risk categories Assess how we measure and manage the risk across our operations (e.g. budget targets, variance tolerances etc) Apply measure to a risk category 9

10 Risk Identification and Quantification (cont) Managements view GROUP RISK MAP Pros Concentrates the focus on key risks Helps to establish risk appetite Is a simple but effective communication tool Great for new markets or first time implementers Cons Very subjective Can be gamed Can be resource intensive and risk mangers become risk reporters Doesn t change a great deal and is not very predictive 10

11 Risk Identification and Quantification (cont) Engaging the Board Enterprise Risk Management Dashboard Board members can see at a glance key areas within the business that require immediate attention and then monitor these movements over time. Further information can be found in the full report attached. Benefits Links risk to day to day operations Provides a tool to establish movements in risk Risk and Audit can independently verify movements in business metrics Board has more oversight on consistent operational data and impact on risk 11

12 Risk Identification and Quantification (cont) Risk Category Risk Description Key Metric Reference Risk Indicator KRI Movement Management of interest rate volatility Interest rate hedging profile 3.1 Financial Risks (Ref 3) Management of foreign currency volatility Foreign currency hedging profile 3.2 Ability to manage debt expiries Debt maturity profile 3.3 Management of commodity price volatility Commodity hedging profile 3.4 Market Risks (Ref 4) Credit Risks (Ref 5) Operational Risks (Ref 6) Volume Share 4.1 Loss of consumer market share Value Share 4.2 Arrears 5.1 Risk of customer default Dynamic Risk Score 5.2 Accounts on Credit Hold 5.3 Supplier Risk (financial) Dynamic Risk Score Supplier Risk (performance) Performance Measures Supplier Risk (quality) Process Capability Score Customer Risk (performance) Out of stocks DIFOT - Bulk Product quality index Packaging quality index Production Risk (quality) Consumer complaints TCCC Quality Audits Customer Service Route Customer Service Risks Customer Service Bulk 12

13 Risk Identification and Quantification (cont) Example Customer/Production Risk This measure is used historically in Production but has a direct link to customer satisfaction risk, therefore is used as an indicator for movements in the levels of customer satisfaction. 13

14 Risk Tolerance (Appetite) Mitigation, Transfer or Accept CCA Risk and Control Reporting Group Risk Map Transfer Risk (INSURANCE) Board Risk Appetite Accept/ Avoid Internal Audit Other Assurance Examples FX and commodity price hedging within min/max parameters Product Quality >95.5% Regrettable Turnover <7% Internal Control Tolerance

15 Example Gold Coast Conference Insurance Travel, Death, TPD & TSC Insurance Risk Internal Controls Break wall Distance from ocean No-one important ever goes to conferences This facility has 7 days supply of alcohol 15

16 Management of and Response to Insured or other Major Risk Related Events BCP s Business Continuity Plans DR IT Disaster Recovery BUSINESS CONTINUITY MANAGEMENT (IMCR) Incident Management Crisis Response IMCR: GLOBAL PROCESS USED ACROSS COCA-COLA SYSTEM TCCC & CCA Manage & resolve issues & incidents Structured, co-ordinated & centralised response RISK MANAGEMENT Incident Planning & Prevention E.g. MPT and loss of key site simulations re-modelling of key risks 16

17 MPT Simulation Video 17

18 EXAMPLE : Management of and Response to Insured or other Major Risk Related Events 18

19 EXAMPLE : Management of and Response to Insured or other Major Risk Related Events (cont) Incident & Date: 6.3 magnitude earthquake in Christchurch, February 2011 Final agreed settlement in line with initial estimate (within $250k) Minimum interruption to business finished product supplied and shipped from operating plant in Auckland Loss of sales restricted to Red Zone (in CBD) only Claim settled and agreed by December 2011 (result of established CCA Property/BI claim guidelines) No subsequent damage to operating plant since February 2011 earthquake Auckland Christchurch 19

20 Management of and Response to Insured or other Major Risk Related Events (cont) Rolling program lead by Vero over 8 years 16 sites visited across all countries in any one policy period Use of CURA Risk Management Program Summary of Risk Recommendations for Sites visited 2011/2012 *10% Vero RM Advancer Award 2010 (Kewdale) Renewal Submission will provide: 36% 54% Completed Partial/In Progress Copies of all available reports Details of all Risk Recommendations Responses and Comments by CCA to each Not Actioned *e.g. >$2M sprinkler system at SPCA Shepparton 20

21 Selling Risk to the Insurance Market Communication of risk management practices CCA s risk management structure Policies People e.g. dedicated State and National OH&S Managers Utilisation of risk engineer surveys Recommendations being actioned (including use of CURA software) Appointment of experts to evaluate hazardous materials and dangerous goods Pre-incident planning TCCC and CCA audits IMCR process Business continuity management Simulations Response to lessons from major events and simulations Post-incident response IMCR process Key stakeholder management such as insurers, traditional media and social media, law enforcement agencies, regulatory authorities etc. 21

22 Insurance What CCA Cover and Don t Cover Insured Industrial Special Risks D&O Public and Products Liability Marine Transit Corporate Travel Motor Vehicle Not Insured Machinery & Boiler Environmental Employer Practices Cyber Risks Terrorism (excluding Australia) Political 22

23 Final thoughts What we would like from the insurance market? Longer term agreements avoiding the annual renewal process and decrease admin/management time etc. Greater transparency of risk evaluation by underwriters and insurers Use of qualitative measures in assessing risk such as supplier indemnity agreements and access to credit to fund remedial actions in advance of insurance settlements Increased partnering to reduce risk (e.g. co-funding for training exercises outside of MPT, liability audits, property and business interruption simulations) 23

24 Final thoughts Emerging risks Supermarket concentration Cyber risk Social media Australian food industry Social issues Brand reputation 24

25 Q&A ANDREW WEARNE Chief Risk Officer andrew.wearne@ccamatil.com Coca-Cola Place - L14, 40 Mount Street North Sydney NSW 2060, Australia MICHAEL BRAUDE General Manager Treasury Risk & Insurance michael.braude@ccamatil.com Coca-Cola Place - L15, 40 Mount Street North Sydney NSW 2060, Australia 25