Business review 2010 Risks related to production contingency <strong>Refresco</strong> continues to invest significant sums of money in its production sites. Toge<strong>the</strong>r with a leading insurance broker, we have rolled out a program to continuously improve housekeeping <strong>and</strong> fire protection <strong>and</strong> mitigate business interruption risks. We have, for example, invested in sprinkler installations in key plants <strong>and</strong> will extend this to more of our plants in 2011. Because of <strong>the</strong> number of plants in <strong>the</strong> group, we are able to produce nearly every individual stockkeeping unit (SKU) at at least three different locations, which helps us to secure continued supply to our customers even if <strong>the</strong> worstcase scenario materializes. Financial risks In addition to <strong>the</strong> above, <strong>Refresco</strong> is exposed to various risks arising from our financial operations <strong>and</strong> <strong>results</strong>. These risks relate to such matters as: • • • • • • <strong>the</strong> impact of changes in share prices, interest rates <strong>and</strong> life expectancy on net pension liabilities maintaining group cash flows at an appropriate level <strong>the</strong> impact of interest rate movements on <strong>de</strong>bt <strong>and</strong> cash positions <strong>the</strong> impact of currency movements on <strong>the</strong> Group’s earnings <strong>and</strong> on <strong>the</strong> translation of its un<strong>de</strong>rlying net assets market liquidity <strong>and</strong> counterparty risks behavior of banks <strong>and</strong> credit insurers O<strong>the</strong>r risks <strong>Refresco</strong>’s businesses are exposed to varying <strong>de</strong>grees of risk <strong>and</strong> uncertainty related to o<strong>the</strong>r factors, including competitive pricing, consumption levels, physical risks, legislative, fiscal, tax <strong>and</strong> regulatory <strong>de</strong>velopments, terrorism <strong>and</strong> economic, political, <strong>and</strong> social conditions in <strong>the</strong> environments where we operate. All of <strong>the</strong>se risks could materially affect <strong>the</strong> Group’s business, revenue, operating profit, net profit, net assets <strong>and</strong> liquidity. There may be o<strong>the</strong>r risks that are unknown to <strong>Refresco</strong> or that are currently believed to be immaterial. As far as tax risks are concerned, in 2009 we started working with <strong>the</strong> Dutch tax authorities on a program called “horizontaal toezicht”. This involves <strong>de</strong>veloping <strong>and</strong> implementing a tax strategy <strong>and</strong> tax control framework that enable <strong>the</strong> tax authorities to become more proactive <strong>and</strong> real time, <strong>the</strong>reby significantly reducing historical tax risks for <strong>the</strong> company. Insurance As a multinational group with a broad product range <strong>and</strong> operations in eight countries, <strong>Refresco</strong> is subject to varying <strong>de</strong>grees of risk <strong>and</strong> uncertainty. It does not take out insurance against all risks <strong>and</strong> retains a significant element of exposure to those risks against which it is insured. However, its business assets in each country are insured against insurable risks as <strong>de</strong>emed appropriate. It is insured against key risks like fire, business interruption <strong>and</strong> product <strong>and</strong> general liability. Internal Control <strong>and</strong> Reporting Procedures During 2010 we continued with <strong>the</strong> internal audit procedures supported by KPMG, which were started in 2008. These procedures play a key role in providing an objective view <strong>and</strong> continuous reassurance of <strong>the</strong> effectiveness of risk management <strong>and</strong> related control systems throughout <strong>Refresco</strong>, to both business unit management <strong>and</strong> <strong>the</strong> Executive Board. The Group established an in<strong>de</strong>pen<strong>de</strong>nt audit committee, comprised entirely of Supervisory Board members, which supervises internal control <strong>and</strong> <strong>report</strong>ing procedures. <strong>Refresco</strong> has a comprehensive budgeting <strong>and</strong> monthly <strong>report</strong>ing system with an annual budget approved by <strong>the</strong> Executive <strong>and</strong> Supervisory Boards. Monthly <strong>report</strong>ing routines are used to <strong>monitor</strong> performance against budget <strong>and</strong> previous year. It is <strong>Refresco</strong>’s practice to bring newly acquired companies into <strong>the</strong> Group’s governance procedures as soon as is practicable, <strong>and</strong> in any event, by <strong>the</strong> end of <strong>the</strong> first full year of operation.
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