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Innovation at Coca-Cola Amatil
2
Enterprise Risk Management for
Extreme Events, a Corporate View
Michael Braude
General Manager Treasury, Risk & Insurance
Andrew Wearne
Chief Risk Officer
Coca-Cola Amatil
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
Introduction to Coca-Cola Amatil
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A$10b market capitalisation
(based on A$13.05 /share)
Approx 30% owned by
The Coca-Cola Company (TCCC)
15,000 employees
2012 net profit after tax A$0.56b
2012 revenue A$5.1b
Publicly listed Australian
company (ASX top 30)
Top 5 global Coca-Cola bottler
Key CCA Facts
81 warehouses are not marked but are geographically spread across Indonesia
SPCA has additional manufacturing equipment in Thailand and Spain (co-packing arrangement) and utilises third party packaging arrangements in China
CCA Warehouses and Production Facilities
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CCA at a Glance as at 31 December 2012
Major Products and Brands
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Powerade Fuel+
PRODUCT & PACK INNOVATION UNDERPINS
STRONG MARKET POSITION
GV Milk “Strong Coffee”
Powerade 600ML “Silver
Charge”Mt Franklin Super Light-
weight “Easy-Crush bottle”
Glaceau “Low Cal”
Mother fuel cap
NON-ALCOHOLIC BEVERAGES FOOD & SERVICES
ALCOHOLIC BEVERAGES
CCA Risk Management Structure
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Group MD
Group CFO
Chief Risk Officer
GM Treasury, Risk & Insurance
Operational Risks, Audit, Fraud &
Security
Financial Risks, Liquidity and
Insurable Risks
Audit and Risk Committee
CCA Board
Risk Identification and Quantification
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•Workshop with Senior Management• Every 6 months•Action Plans created•Key risks only•Country level and Group
Group Risk Map
Managements view
Top down
• 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
Risk Measured in the business
Bottom Up
Risk Identification and Quantification (cont)
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GROUP RISK MAP
Managements viewPros• 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
Risk Identification and Quantification (cont)
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Engaging the BoardEnterprise 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
Risk Identification and Quantification (cont)
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Risk Category Risk Description Key Metric Reference Risk
Indicator
KRI
Movement
Financial Risks
(Ref 3)
Management of interest rate volatility Interest rate hedging profile 3.1
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)Loss of consumer market share
Volume Share 4.1
Value Share 4.2
Credit Risks
(Ref 5)Risk of customer default
Arrears 5.1
Dynamic Risk Score 5.2
Accounts on Credit Hold 5.3
Operational Risks
(Ref 6)
Supplier Risk (financial) Dynamic Risk Score
Supplier Risk (performance) Performance Measures
Supplier Risk (quality)
Customer Risk (performance)
Process Capability Score
Out of stocks
DIFOT - Bulk
Production Risk (quality)
Product quality index
Packaging quality index
Consumer complaints
TCCC Quality Audits
Customer Service RisksCustomer Service –Route
Customer Service – Bulk
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.
Risk Identification and Quantification (cont)
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Transfer Risk (INSURANCE)
Risk Tolerance (Appetite) Mitigation, Transfer or Accept
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Internal Control Tolerance
Accept/Avoid
Group Risk Map
CCA Risk and Control Reporting
Internal Audit
Other Assurance
Board Risk Appetite
Examples• FX and commodity price
hedging within min/max parameters
• Product Quality >95.5%• Regrettable Turnover <7%
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Example – Gold Coast Conference
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Internal Controls• Break wall• Distance from ocean• No-one important ever
goes to conferences• This facility has 7 days
supply of alcohol
Insurance• Travel, Death, TPD & TSC Insurance
Risk
BCP’s DR
BUSINESS CONTINUITY
MANAGEMENT
Business Continuity Plans IT Disaster Recovery
Incident Management Crisis Response Incident Planning & PreventionE.g. MPT and loss of key site
simulations – re-modelling of key risks
(IMCR) RISK MANAGEMENT
IMCR: GLOBAL PROCESS USED ACROSS
COCA-COLA SYSTEM
• TCCC & CCA
• Manage & resolve issues & incidents
• Structured, co-ordinated &
centralised response
Management of and Response to Insured or other Major Risk Related Events
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MPT Simulation Video
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EXAMPLE : Management of and Response to Insured or other Major Risk Related Events
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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
Christchurch
Auckland
EXAMPLE : Management of and Response to Insured or other Major Risk Related Events (cont)
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Management of and Response to Insured or other Major Risk Related Events (cont)
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• 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
• Vero RM Advancer Award – 2010 (Kewdale)
• Renewal Submission will provide:
Copies of all available reports Details of all Risk Recommendations Responses and Comments by CCA to each
54%36%
*10%
Summary of Risk Recommendations for Sites visited 2011/2012
Completed
Partial/In Progress
Not Actioned
*e.g. >$2M sprinkler system at SPCA Shepparton
Selling Risk to the Insurance Market
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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.
Insurance – What CCA Cover and Don’t Cover
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Insured Not Insured
Industrial Special Risks Machinery & Boiler
D&O Environmental
Public and Products Liability Employer Practices
Marine Transit Cyber Risks
Corporate Travel Terrorism (excluding Australia)
Motor Vehicle Political
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)
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Final thoughts – Emerging risks
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Supermarket concentration
Australian food industry
Social issues Brand reputation
Social mediaCyber risk
Q&A
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ANDREW WEARNEChief Risk Officer
+61 2 9259 6224+61 415 205 [email protected] Place - L14, 40 Mount StreetNorth Sydney NSW 2060, Australia
MICHAEL BRAUDEGeneral Manager Treasury Risk & Insurance
+61 2 9259 6607+61 418 235 532
[email protected] Place - L15, 40 Mount Street
North Sydney NSW 2060, Australia
