measure and monitor the processes and report results ... - Refresco.de

Refresco’s business is largely dependent on continued consumer
demand, and less consumer spending may reduce sales
of our products. This has obvious implications for revenue
and profitability. Last year’s experience demonstrated that the
private label soft drink and juice market is less sensitive to an
economic downturn than other Fast Moving Consumer Goods
(FMCG) markets. However, the margin pressure that our retail
customers face is stronger than ever. In our strategy we aim at
diversification, in terms of products and of customers as well
as geographically, to mitigate risks caused by negative effects
in any one category. Refresco closely monitors performance in
the most volatile markets as well as customers and suppliers,
and is able to respond quickly to protect its business.
Operational risks
Risks related to price fluctuations and supply side developments
In 2010, we again faced significant increases in the cost of
various commodities and raw and packaging materials. In
general, we purchase raw materials and commodities through
forward contracts in order to cover sales positions with our
customers, a policy called back­to­back coverage. Remaining
risks are substantially mitigated through a combination of
selling price increases, supply chain savings and mix improvements.
Where appropriate, we also use exchange­traded
futures to hedge future price movements, especially in relation
to purchases in US dollars. Partly as a result of its recent
acquisitions, Refresco has increasingly become a total soft drink
producer rather than just a juice producer. This has reduced
supply­side risk associated with vulnerability to individual
commodities, raw materials and packaging, and to countries
that supply these items. However an element of risk will always
be there, as in some countries and segments we are dependent
on a few larger suppliers.
Risks related to customer concentration
Refresco deals with several large customers, but as it grows
through acquisitions, concentration on individual customers
has decreased further. Over time, Refresco has balanced its
customer portfolio, which in the early years mainly consisted of
retailers, with a larger share of A­brand manufacturers, thereby
creating long­term stability. Whereas contracts with retailers
are renegotiated every year, we close co­manufacturing agreements
with A­brand manufacturers for 3 to 5 years, thus ensuring
capacity utilization. We carefully manage our international
customer relationships, monitoring growth and profitability and
where necessary adjusting costs, complexity or capacity.
Credit risk is low, and there is no significant concentration of
credit risk. In general, we subject our customers to credit limits
and/or creditworthiness tests, and sales are subject to payment
conditions that are common practice in each country. Material
losses because of credit risk are unlikely, especially due to the
geographic diversification of our activities. Effects of the economic
recession on our clients are carefully monitored. Since our
customers are leading European or global retailers and A­brand
companies, we do not insure credit risks.
Risks related to food safety
Because the supply chain is becoming more and more internationalized,
increasing levels of regulatory and consumer
focus continue to render food safety one of Refresco’s most
significant business risks. Refresco may be confronted with
food problems, including disruptions to the supply chain
caused by food­borne illnesses, which may have a material
adverse effect on Refresco’s reputation, sales and results of
operations. To mitigate these risks, every production site has
implemented its own quality system (HACCP) based on critical
control and quality points in the production process in order
to ensure food safety and quality. Additionally, every production
site has been certified according to the International Food
Standard (IFS) or, in the UK, to the British Retail Consortium
(BRC) protocol to ensure food safety. On top of that Refresco
representatives regularly visit and audit key suppliers and based
on the outcome decide to start, continue or indeed discontinue
relationships. Notwithstanding economic circumstances, Refresco
is committed to not making any compromise on quality.
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