Coca-Cola HBC AG
Publishes 2020 integrated annual report
'Adapt to Win'
Zug, Switzerland - 18 March 2021 - Coca-Cola HBC AG today published its 2020 Integrated Annual Report, Adapt to Win. The report highlights progress made on all aspects of business, governance and sustainability during 2020.
You can find our 2020 Integrated Annual Report, ("2020 Annual Report") here: https://www.coca-colahellenic.com/en/investor-relations/results-reports-presentations
A copy of the 2020 Annual Report has also been submitted to the National Storage Mechanism in accordance with Listing Rule 9.6.1 and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Printed copies of the 2020 Annual Report will be available on or around 8 April 2020 and can be requested by shareholders, free of charge, at https://www.coca-colahellenic.com/en/investor-relations/order-a-report
The information in the Group's preliminary results announcement released on 11 February 2020, together with the information set out in the Appendix to this announcement, which is extracted from the 2020 Annual Report, constitutes the material required by the Disclosure Guidance and Transparency Rules (DTR 6.3.5R) to be communicated to the media in unedited full text through a Regulatory Information Service. Page numbers and notes to the accounts mentioned in the extracts from the 2020 Annual Report, refer to page numbers and notes to the accounts in the 2020 Annual Report. Terms used, but not otherwise defined in this announcement, have the meanings given to them in the 2020 Annual Report. This material is not a substitute for reading the full 2020 Annual Report.
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Coca‑Cola HBC Group
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APPENDIX
1. Principal risks and uncertainties
The principal risks and uncertainties relating to the Company are as set out in the "Effective management of risk" section of the 2020 Annual Report, pages 54 to 61.
The following is extracted in full and unedited text from the 2020 Annual Report and is repeated here solely for the purpose of complying with DTR 6.3.5R.
Principal risks
The cyclic review of our principal risks involves an assessment of the likelihood of their occurrence and their potential consequences to confirm the level of exposure and evaluate the strategies to manage them. Our list of principal risks, presented on pages 58-61, involves a long-term view which evolves over time.
In 2020, the COVID-19 pandemic had a significant impact on our business and particularly on two of our principal risks - channel mix and health and safety. As indicators of the broad impact that the COVID-19 pandemic might have on our business and our people began to emerge in early 2020, our Group COVID-19 Operational Task Force worked closely with Company business units to identify additional actions to be taken to reduce the impact on our business.
Restrictions across our markets saw hotels, restaurants and cafés close down for extended periods of time. This had a significant impact on one of our primary channels for providing our products to consumers.
Despite this, our strong relationships with partners and customers, together with the resilience and adaptability of our people and our business, enabled us to adjust to meet changing demand.
Many of our smaller customers, smaller cafés and restaurants for example, have been severely impacted by the COVID-19 pandemic. While it increased short-term credit risks, the Company took a long-term view of the situation, using this time to support many of our smaller customers and invest in building relationships which will pay dividends over time.
As noted in our viability statement, while the longer-term changes to our markets are still uncertain, we are confident that with the widespread distribution of vaccines and the focus of governments in our markets on economic recovery, the impact of the COVID-19 pandemic is likely to dissipate in the short to medium term.
The health and safety risks to our people of acquiring and transmitting COVID-19 were considerable, and our Board moved to prioritise safety in early 2020. Additional measures were put in place across offices and production & distribution facilities to reduce the risk of transmission and advice was provided to our people to reduce the risk of acquiring the disease. Contingency plans to manage potential staffing shortfalls were established but not required.
We continue to carefully monitor COVID-19 cases in each market and investigate increases or unusual concentrations. We have also learned from what has worked well in certain markets and shared best practices to safeguard the wellbeing of our employees, customers and communities.
The changing nature of the workplace, with a dramatic shift to working from home during 2020, also provided challenges as far as providing a safe workplace and ensuring additional support for family care and mental health concerns. The Company encouraged our employees to access our Employee Assistance Programme to help support our people through these trying times.
We saw an increase in political and social instability with hostilities in Armenia and protest activity in Belarus and Nigeria.This instability increased personal security risks to our people and had some shortterm operational impacts on our business.
There is evidence of increasing social discontent and dissatisfaction with incumbent governments around the world, particularly amongst younger people who believe that political leaders are not listening to them or acting quickly enough on issues that are high on their agenda, including equality and climate change.
This dissatisfaction may be exacerbated by widening gaps between groups disproportionally impacted by COVID-19 and governments introducing additional measures to restore economies. This may lead to unrest and protest activity creating personal security risks for our people as well as disruptions to our business.
COVID-19 has led to higher levels of sovereign debt across our territories, that may slow economic growth and impact consumer spending. It may also lead to increased corporate taxes and additional discriminatory taxes such as sugar taxes and non-recyclable plastics and water levies as governments look to reduce debt, broaden the tax base and respond to consumer concerns around health and climate change.
The global geopolitical and macroeconomic environment remains volatile and complex, with the potential to adversely impact our business. It therefore remains a focus for our ERM programme.
Cyber security risks increased during the year and that was reflected in a number of well-publicised attacks against a variety of companies and industries. The increase in the number of people working from home increased opportunities for malicious acts. The Company continued to enhance its IT security programme to mitigate those risks by aligning with the NIST Cyber Security Framework and continuously increasing our ability to respond to increasingly sophisticated cyber attacks by improving our people capabilities, processes and technology.
In 2020, we retained our focus on managing our key sustainability risks with continued management attention and investment in new technologies. Our aim is to reduce the longer-term impact of climate change on the business, to improve efficiencies and to reduce our impact on the environment. This reflects our commitment to our long-term Mission 2025 strategy despite the shorter-term pressure on our financial resources resulting from the COVID-19 pandemic.
Access to water is fundamental for healthy communities and the environment as well as for our operations. Climate change is impacting the availability of water in some parts of the territories in which we operate.This may lead to increasing scarcity, production halts and generally higher costs associated with water. Failure to decrease our net use of water and contribute to resolving water challenges for our communities and the environment could lead to increasing regulatory attention and a decline in stakeholder trust.
Last year, we renewed our Water stewardship policy. We also continued to assess the potential impact of climate change on water availability in regions in which we operate.
We are using tools from recognized organisations, such as the World Wildlife Federation (WWF) and the World Resource Institute (WRI), to assess future water risks for different temperature scenarios.The outcomes are the basis for our long-term management plans to assure supply and business continuity as well as making a contribution to water challenges facing our communities.
A broader discussion on our climate-related risks, their link to materiality, and our risk management approach is provided as part of our statement on implementing the recommendations of the Task Force on Climate-related Financial Disclosures located on page 62-63.
Our robust risk management programme is integrated into monthly business routines and evaluates risks against our business and strategic priorities, ensuring we remain vigilant to the uncertainty in our operating environment and can react with greater speed.
The programme enables us to proactively identify new risks and opportunities, which in turn allows us to understand threats to our business viability. This analysis is the key component of our qualitative review process in support of our viability statement.
| Principal risks | Description | Potential impact | Key mitigations | Link to material issues | Risk Status |
| 1. Sustainability: Plastics and packaging waste | Concerns related to packaging waste and plastic pollution. | • Decreased credibility in public discussions • Long-term damage to our reputation and licence to operate • Increased cost of doing business, including discriminatory taxes • Loss of consumer base | • World Without Waste global vision • Mission 2025 packaging related commitments • Partnerships with local communities, NGOs, start-ups and academia to manage packaging recovery and minimise environmental impacts | • Packaging and waste management • Sustainable sourcing | Increasing |
| 2. Sustainability: Climate change | The risks associated with unpredictable and more volatile effects of weather. Failure to reduce carbon emissions along the value chain. | • Commodity availability • Disruption of operations and distribution • Long-term damage to our reputation and licence to operate • Increased cost of doing business | • New science-based target for 2030 • Energy management programmes and transition to renewable and clean energy • Engagement and partnering with local and international stakeholders • Focus on sustainable procurement • Physical risk analysis including quantification and stress testing in line with TCFD recommendations • Natural disaster plans in place across the operations | • Climate change • Sustainable sourcing | Increasing |
| Principal risks | Description | Potential impact | Key mitigations | Link to material issues | Risk Status | ||
| 3. Sustainability: Water availability and usage | The risks in our operations, sourcing areas of raw materials, communities and the environment related to water availability, water stress and water quality. | • Availability of water for the communities that we operate within and the environment • Long-term damage to our reputation and licence to operate • Water shortage for our operations may lead to production interruptions • Increased cost of water sourcing and treatment | • Source vulnerability assessments (SVAs) to identify and mitigate water supply risks are performed at all plants • Alliance for water stewardship certification, to identify and mitigate shared water risks in the catchment areas are performed at all plants • All key water-related risks are consolidated in the water-risk register and shared quarterly with Supply Chain Management • Water usage reduction plans and wastewater discharge monitoring is implemented in all plants • Water priority locations are identified, and context-based action plans are prepared • Water stewardship initiatives and other forms of engagement and partnering with local and international stakeholders | • Water stewardship • Sustainable sourcing | Increasing | ||
| 4. Consumer health and wellbeing | Failure to adapt to changing consumer health trends, misconceptions about the health impact of our products. | • Failure to achieve our growth plans • Long-term damage to our reputation and licence to operate • Loss of consumer base • Potential imposition of discriminatory taxation | • Focus on product innovation and expansion to a 24/7 beverage portfolio • Expand our range of low- and no-calorie beverages • Introduce smaller packs • Reduce the calorie content of products in the portfolio • Clearer labelling on packaging • Promote active lifestyles through consumer engagement programmes focused on health and wellness • Address misconceptions about the health impacts of our products | • Nutrition • Product quality • Responsible marketing | Increasing | ||
| Principal risks | Description | Potential impact | Key mitigations | Link to material issues | Risk Status |
| 5. Cyber incidents | A cyber attack or data centre failure resulting in business disruption, or breach of corporate or personal data confidentiality | • Financial loss • Operational disruption • Damage to corporate reputation • Non-compliance with data protection legislation (e.g. GDPR) | • Implement a NIST-aligned cyber security and privacy control framework and monitor compliance • Safeguard critical IT and operational assets • Enhanced ability to detect, respond and recover from cyber incidents and attacks • Foster a positive culture of cyber security • Monitor threat landscape and remediate associated vulnerabilities • Integration of Cyber Incident Response Plan into IMCR Framework | • Economic impact | Increasing |
| 6. Health and safety | The risk of health and safety and occupational workplace incidents involving our employees, contractors or third-party logistics providers. | • Death, injury or disease of employees, contractors or members of the public • Employee engagement and motivation • Attraction of talent/prospective employees | • COVID-19 prevention protocol in place across the organisation • Monitoring system for internal COVID-19 cases and enhanced rapid response to reduce risk of transmission • New Group-wide policy and supporting materials for improved mental health • Behavioural-based Safety Programme in place at all our facilities • Standardised programmes, policies and legislation applied locally • Group oversight by the Health and Safety (H&S) Team • H&S Board with mandate to accelerate the H&S step-change plan implementation | • Employee wellbeing & engagement | Increasing |
| Principal risks | Description | Potential impact | Key mitigations | Link to material issues | Risk Status |
| 7. Channel mix | The immediate consumption channel remains under pressure and accelerated as consumers altered consumption habits and shifted occasions from out-of-home to at-home. A continued increase in the concentration of retailers and independent wholesalers on whom we depend to distribute our products. | • Reduced availability of our portfolio and overall profitability | • Prioritisation of assortment per channel to drive higher margin packs • Enhanced marketing campaigns to capture growing occasions of socialising at home accelerated by COVID-19 restrictions • Refreshed and enhanced key account capabilities and tools to partner and grow profitable revenue with customers • Work closely with our out-of-home channel customers to drive transactions and support them selling online to more effectively manage the impact of COVID-19 or in their re-opening as restrictions ease • Accelerate Right Execution Daily (RED) to support our commitment to operational excellence • Develop our digital and e-commerce capabilities to capture opportunities associated with existing and new distribution channels • Localised management plans in specific countries dependent on channel impact and risk and including variance in the impact of COVID-19 restrictions | • Economic impact | Increasing |
| 8. Foreign exchange and commodity costs | Foreign exchange and commodity exposure arises from changes in exchange rates and commodity prices. Currency devaluation combined with capital controls restricts movement of funds and increases the risk of asset impairment. | Financial loss • Increased cost base • Asset impairment • Limitations on cash repatriation | • Treasury policy requires, where possible, the hedging of 25% to 80% of rolling 12-month forecasted transactional foreign currency exposure • Hedging beyond 12 months may occur in exceptional cases, subject to approval of Group CFO • Treasury policy requires, where possible, the hedging of rolling three-year commodity exposures; different policy limits apply for each hedgeable commodity • Derivative financial instruments are used, where available, to reduce net exposure to currency and commodity price fluctuations | • Economic impact | Stable |
| Principal risks | Description | Potential impact | Key mitigations | Link to material issues | Risk Status |
| 9. Geopolitical and macroeconomic | Volatile and challenging macroeconomic, security and geopolitical conditions together with adverse global events including health-related issues can affect consumer demand and create security risks across our diverse markets. | • Eroded consumer confidence affecting discretionary spending • Potential imposition of discriminatory taxation • Inflationary pressures • Social unrest • Safety of people and assets | • Seek to offer the right brand at the right price in the right package through the right channel • Robust security practices and procedures to protect people and assets • Crisis response and business continuity strategies that enable effective responses to adverse events | • Economic impact • Corporate citizenship • Employee wellbeing & engagement | Increasing |
| 10. People | Inability to attract, retain and engage sufficient numbers of qualified and experienced employees in highly competitive talent markets. | • Failure to achieve our growth plans | • Upgrade our Employer Value Proposition and Employer Brand • Develop leaders and people for key positions internally, improve leaders' skills and commitment for talent development • Continuous employee listening to address culture and engagement effectively • Promote an inclusive environment that allows all employees to achieve their full potential • Create shared value with the communities in which we work to ensure we are seen and considered as an ethical business with an attractive purpose • Expand talent pool by hiring more diverse workforce | • Employee wellbeing & engagement • Human rights, diversity & inclusion • Corporate citizenship | Stable |
| 11. Quality | The occurrence of quality/food safety issues, or the contamination of our products across our diverse brand portfolio. | Damage to brand and corporate reputation • Loss of consumer trust • Reduction in volume and net sales revenue | • Stringent quality/food safety processes in place to minimise the likelihood of occurrence • Early warning systems that enable fast issue identification • Robust response processes and systems that enable us to quickly and efficiently deal with quality/food safety issues, ensuring customers and consumers retain confidence in our products | • Product quality | Stable |
| Principal risks | Description | Potential impact | Key mitigations | Link to material issues | Risk Status | |
| 12. Ethics and compliance | The risk of fraud against the Company as well as risk of Anti-Bribery and Corruption (ABAC) fines or sanctions if our employees, or the third parties we engage to deal with governments, fail to comply with ABAC requirements. The risk of inadvertent non-compliance with international sanctions in certain countries. | • Damage to our corporate reputation • Significant financial penalties • Management time diverted to resolving legal issues • Economic loss because of fraud and reputational damages, fines and penalties, in the event of non‑compliance | • Annual 'Tone from the Top' messaging • Code of Business Conduct, ABAC and commercial compliance training and awareness campaigns for our entire workforce, training on international sanctions for our employees exposed to this risk • All third parties that we engage must comply with our Supplier Guiding Principles, which include ABAC and international sanctions compliance • All third parties that we engage to deal with governments on our behalf are subject to ABAC due diligence. Screening of third parties and transactions potentially exposed to international sanctions risk • Cross-functional Joint Task Forces in Nigeria and Russia that proactively address risks in our key operations • Risk-based internal control framework and assurance programme with local management accountability • Periodic risk-based internal audits of ABAC compliance programme • 'Speak Up Hotline' | • Corporate governance | Stable | |
| 13. Strategic stakeholder relationships | We rely on our strategic relationships and agreements with The Coca-Cola Company (including Costa Coffee), Monster Energy and our premium spirits partners. | • Termination of agreements or unfavourable renewal terms couldadversely affect profitability | • Management focus on effective day-to-day interaction with our strategic partners • Working together as effective partners for growth • Engagement in joint projects and business planning with a focus on strategic issues • Participation in 'Top to Top' senior management forums | • Economic impact •Corporate governance
| Stable | |
2. Directors' responsibility statement
The following statement relates to and is extracted from the 2020 Annual Report, page 131. It is repeated here solely for the purpose of complying with DTR 6.3.5R. It is not connected to the extracted information presented in this announcement or in the Company's results announcement published on 11 February 2021.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report, including the consolidated Financial Statements, and the Corporate Governance Report including the Remuneration Report and the Strategic Report, in accordance with applicable law and regulations.
The Directors, whose names and functions are set out on pages 80-82, confirm to the best of their knowledge that:
(a) The Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
(b) The consolidated Financial Statements, which have been prepared in accordance with International Financial Reporting Standards, as issued by the IASB, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation of the Group taken as a whole.
(c) The Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidated Coca-Cola HBC Group taken as a whole, together with a description of the principal risks and uncertainties that they face.
The activities of the Group, together with the factors likely to affect its future development, performance, financial position, cash flows, liquidity position and borrowing facilities are described in the Strategic Report (pages 10 to 72). In addition, Notes 24 'Financial risk management and financial instruments', 25 'Net debt', and 26 'Equity' include: the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group has considerable financial resources, together with long-term contracts with a number of customers and suppliers across different countries. The Directors have also assessed the principal risks and the other matters discussed in connection with the Viability Statement on page 57. The Directors considered it appropriate to adopt the going concern basis of accounting in preparing the annual Financial Statements and have not identified any material uncertainties to the Group's ability to continue to do so over a period of at least 12 months from the date of approval of these financial statements.
By order of the Board
Anastassis G. David
Chairman of the Board
18 March 2021
About Coca‑Cola HBC
Coca-Cola HBC is a growth-focused CPG business and strategic bottling partner of The Coca-Cola Company. We create value for all our stakeholders by supporting the socio-economic development of the communities in which we operate and we believe building a more positive environmental impact is integral to our future growth. Together, we and our customers serve more than 600 million consumers across a broad geographic footprint of 28 countries on 3 continents. Our portfolio is one of the strongest, broadest and most flexible in the beverage industry, offering consumer-leading partner brands in the sparkling, juice, water, sport, energy, plant-based, ready-to-drink tea, coffee, adult sparkling and premium spirits categories. These brands include Coca-Cola, Coca-Cola Zero, Schweppes, Kinley, Royal Bliss, Costa Coffee, Valser, Romerquelle, Fanta, Sprite, Powerade, FuzeTea, Dobry, Cappy, Monster and Adez. We foster an open and inclusive work environment amongst our more than 27,000 employees and we are ranked among the top sustainability performers in ESG benchmarks such as the Dow Jones Sustainability Indices, CDP, MSCI ESG and FTSE4Good.
Coca-Cola HBC has a premium listing on the London Stock Exchange (LSE:CCH) and is listed on the Athens Exchange (ATHEX:EEE). For more information, please visit http://www.coca-colahellenic.com.
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