4 - Refresco.de

Risks related to price fluctuations and supply side
Also in 2009 we faced significant volatility in the cost of
various commodities and raw and packaging materials. In
general, we have a policy of purchasing forward contracts
for raw materials and commodities in order to cover sales
positions with our customers. In addition, we substantially
mitigate remaining risks through a combination of price
increases, supply chain savings and mix improvements. Where
appropriate, we also use futures contracts to hedge future
price movements, especially in relation to purchases in US
dollars. As a result of the acquisitions realized in the past few
years and in 2009 our vulnerability on the supply side has
decreased. Refresco has increasingly become a total soft drink
producer rather than just a juice producer and has balanced its
customer portfolio -that in the early years mainly consisted of
retail customers- with a larger share of A-brand manufacturers,
thereby creating long-term stability. Whereas the contracts with
retailers are renegotiated every year, we close co-manufacturing
agreements with A-brand manufacturers for 3-5 years, thus
ensuring capacity. This has reduced supply side risk associated
with vulnerability to individual commodities, raw materials and
packaging, and to countries that supply these items.
Refresco faces risks related to food safety
Because the supply chain is becoming more and more
internationalized, increasing levels of regulatory and consumer
focus continue to render food safety one of Refresco’s most
significant business risks. Refresco may be confronted with
food problems, including disruptions to the supply chain caused
by food-borne illnesses, which may have a material adverse
effect on Refresco’s reputation, sales and results of operations.
To mitigate these risks, every production site has its own
implemented quality system (HACCP) based on critical control
and quality points in the production process in order to ensure
food safety and quality. Additionally, every production site has
been certified according to the International Food Standard (IFS)
or, in the UK, to the British Retail Consortium (BRC) protocol to
ensure food safety. Notwithstanding economic circumstances,
Refresco is committed to not making any compromise on quality.
Financial risks
In addition to the above, Refresco is exposed to various
specific risks in connection with our financial operations and
results. These risks include the following:
the impact of movement in equity markets, interest rates
and life expectancy on net pension liabilities;
maintenance of group cash flows at an appropriate level;
exposure of debt and cash positions to changes in
interest rates;
potential impact of changes in exchange rates on the
Group’s earnings and on the translation of its underlying
net assets;
market liquidity and counterparty risks;
behavior of banks and credit insurers.
Risk of losses due to credit risk
There is no significant concentration of credit risk. In general,
Refresco deals with several large customers and suppliers.
However, as a result of acquisitions made in 2009, concentration
on individual customers has decreased further. Our customers are
subjected to credit limits and/or creditworthiness tests and sales
are subject to payment conditions that are common practice in
each country. Losses because of credit risk are unlikely, especially
since due to the diversification of our activities credit risk from
debt is limited. The effects of the economic recession on our
clients are carefully monitored. Since our customers are leading
European or global retailers and A-brand companies, we do not
insure credit risks.
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