Integrated Management of Risks and Main Business Risks

INTEGRATED MANAGEMENT OF RISKS AND MAIN BUSINESS RISKS

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Risk Assessment

In 2015, the process of Integral risk management was aimed at consolidating the focus of risk analysis from the corporate strategy, which was connected at the tactical and operational level, and which achieved an integral vision of the Organization. This facilitated the annual identification, analysis and assessment of risks in all the Grupo Nutresa business units in Colombia and in its international operations. As a result, the corporate risk catalogue was updated with a total of 20 risks, in the following categories:

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STRATEGIC:
linked to strategic training of the Organization and its relation with the environment.

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OPERATIONAL:
related to failures by people, internal processes, or management systems and technology.

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FINANCIAL:
associated with the fluctuation of financial variables, such as price, exchange and interest rates, and factors such as liquidity and the position of counterparties.

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CLIMATIC AND NATURAL:
caused by climatic, hydrological, geophysical, biological and epidemiological conditions.

INTEGRAL RISK MANAGEMENT IN 2015

  • Updating risk maps for each of the eight business units, marketers and shared – service center.
  • There were 670 strategic and tactical assessments.
  • There were 90 risk assessments in Human Rights in Colombia and international platforms.
  • More than 500 employees were trained in risk and crisis management and business continuity.
Corporate Risks:

1 Involvement of business due to a highly competitive environment.

2 Regulatory changes in nutrition, health and obesity.

3 Involvement of the Organization due to political changes in the countries where it operates.

4 Lack of availability of human talent.

5 Lack of opportunity to respond to changes in consumer preferences.

6 Involvement of commercial management due to changes in the structure and composition of distribution channels.

7 Volatility in prices of raw materials and exchange rates.

8 Counterparty risk.

9 Involvement of the integrity or security of employees in executing their tasks.

10 Involvement of the environment.

11 Interruption of the supply chain.

12 Involvement of consumers due to product contamination.

13 Internal or external violation of Human Rights.

14 Collapse of information and communication systems and technologies.

15 Lack of ethics or inappropriate conduct of employees or third parties.

16 Loss of key information for the Company.

17 Involvement for the use of raw materials with genetically modified organisms (GMOs).

18 Client or consumer dissatisfaction due to noncompliance of product specifications, service or promise of value.

19 Involvement of third parties due to the development of operations, or from clients and visitors in restaurants and points of sale.

20 Involvement due to climatic and natural phenomena.

Principal Risks

Based on the assessment, the principal risks to the Organization were identified according to their probability and impact on Grupo Nutresa’s strategic objectives:

Principal Risks Treatment Measures
Volatility in prices of raw materials.
  • Diversification of raw materials
  • Hedging policies, with levels of risk clearly defined and administered by a specialized committee
  • A highly trained team dedicated to monitoring and negotiating supplies and the exchange rate
  • Permanent search for new opportunities and schemes for efficient, competitive global sourcing of raw materials
Involvement of business due to a highly competitive environment
  • Significant distribution capabilities with a differentiated strategy to address different segments
  • Commercial management supported by the deep, integrated understanding of the market
  • Attractive proposals with a good price/value relation
  • Recognized, beloved brands
  • Portfolio innovation and differentiation
  • Search for entry into new markets
Regulations in nutrition and health matters in the countries where Grupo Nutresa is present
  • Vidarium: Nutrition Research Center
  • Active participation with governments to discuss regulations
  • Monitoring and strict compliance of the regulations of each country
  • Innovation to develop new products and improve existing ones
  • Support for and participation in programs that promote healthy living
  • Responsible management of marketing and advertising

Maturity Model and Levels of Management

As part of Grupo Nutresa’s maturity process for the risk management system, based on standard ISO 31000, the Board of Directors approved the updating of the Integral Risk Management Policy, which incorporated the best practices of the new Country Code in matters of risk and some elements from the Three Lines of Defense model, which considers the leaders of processes, the area of Risk Administration, and Internal Audit. Thus, the different levels of the Organization’s risk management and its main responsibilities were consolidated, as outlined next:

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Risk materialization during the last period

In 2015 risk materialization was related principally to external events such as: regulatory changes in nutrition, health and obesity[1], political changes in the countries of operation[2] (specifically referring to new fiscal policies), and volatility in prices of raw materials and exchange rates[3].

These risks were properly identified and assessed according to the Integral Risk Management methodology of Grupo Nutresa, and the implemented measures that were defined allowed us to mitigate the impacts, maintaining them between the risk appetite ranges established by the Organization.

[1] It includes the effects on businesses due to regulatory changes in nutrition, health and obesity, which may increase competitive pressure and therefore affect the performance and capacity of the company to implement the strategy.

[2] It refers to financial, reputational or compliance effects generated because of governmental changes, or because of the adoption of new public policies (economical, fiscal, social, among others) that may affect the effective development of operations.

[3] It’s the impact on the Company´s financial performance due to adverse volatility in prices of raw materials and exchange rates.

To know the link between Grupo Nutresa´s material aspects and main corporate risks http://informe2015.gruponutresa.com/wp-content/uploads/2016/02/Relevant-Issues-Related-to-Risks-and-Scope.pdf