The Supervisory Board reviews the overall risk exposure and the individual risk factors associated with the Group’s activities. Such reviews are performed as required and at least once a year.
The Supervisory Board adopts guidelines for key areas of risk, monitors developments and ensures that plans are in place for the management of individual risk factors, including commercial and financial risks.
The Executive Committee (ExCom) of Carlsberg annually reviews the overall risk exposure associated with the Group’s activities and updates the existing “heat map” to reflect changes in perceived risks to the business. Following this review, a new set of high-risk issues for the coming year is identified and, in accordance with the Risk Management Policy, ExCom identifies risk owners, who have operational responsibility for monitoring and controlling the risks through a programme of risk-reducing activities. ExCom will continue to monitor the activities throughout 2010 to ensure that sufficient remedial action is taken in line with deadlines.
The current high-risk issues identified within the Group are:
Beer taxation
As beer consumption is price-sensitive, major changes in taxes (excise duties) may have a significant impact on demand. In Russia, an extreme 200% increase in excise duties on beer was implemented in January 2010, and in July 2009 the Ukraine implemented a significant increase of 94% in beer excise duty. The Group closely monitors the risks related to excise duty increases and acts in order to limit the potential impact. Carlsberg has carried out thorough scenario planning for 2010 and subsequent years based on already known and anticipated increases in beer excise duty levels. The scenarios include evaluation of prices, packaging and product mix, regional and national market positions and microeconomic factors such as changes in supply/demand balance for various input costs.
Economic downturn
The economic downturn has affected both consumer demand and expenditure patterns to some extent. Due to the ongoing challenging market environment, the Group accelerated and implemented a large number of cost reduction measures in late 2008 and early 2009. During 2009, contingency plans were implemented to further reduce costs and protect profitability. These actions were taken in addition to the ongoing efficiency programmes. In 2010, the Carlsberg Group will continue to closely monitor the economic environment and establish further contingency plans in order to ensure Carlsberg’s ability to react to changes in market conditions.
Public regulations
Several of the Group’s markets operate with restrictions on consumer behaviour like advertising regulation and smoking bans. In such markets, changes in regulations may, in isolation, be accompanied by a decrease in demand. The Group works to limit the negative consequences of inappropriate use of alcoholic products and actively promotes responsible sales and consumption. Whilst taking account of the regulations, Carlsberg also works to avoid unnecessary sales restrictions.
Price risk – materials
Carlsberg’s policy is to have more than one supplier of raw materials and packaging for its production units around the world in order to mitigate the risk of increasing prices. In some areas within cans, glass and plastic bottles, there is, however, a certain dependence on individual suppliers because of their market position. In order to mitigate these risks, procurement in Carlsberg has become increasingly centralised. Hedging of both volume and price is actively used when deemed appropriate, and this includes the management of long-term Group agreements with key suppliers and fixed price policies.
Financial risks
The Group’s financial risks include foreign exchange, interest rate, credit and liquidity risks. They are presented in the notes to the consolidated financial statements.