Risks relating to international trade and operations in emerging markets
In line with its international growth strategy, the Group currently operates in numerous markets, and plans to expand in certain emerging countries, especially in Eastern Europe, Asia and Latin America.
Operating in emerging markets makes the Group vulnerable to various risks inherent in international business, including exposure to an often unstable local political and economic environment, exchange rate fluctuations (and related hedging difficulties), export and import quotas, and limits or curbs on investment, advertising or limitations on the repatriation of dividends.
Risks relating to the Company’s dependence on licences for the use of third-party brands and licences granted to third parties for use of the Group's brands
At 31 December 2011, 10.2% of the Group’s consolidated net sales came from production and/or distribution under licence of third-party products.
Should any of these licensing agreements be terminated for any reason or not renewed, this could have a negative effect on the Group’s activities and operating results.
Report on operations 39 The Group’s competitive position vis-à-vis the most important global players, which often have greater financial resources and benefit from a more highly diversified portfolio of brands and geographic locations, means that its exposure to market competition risks is particularly significant.
Risks relating to the Company’s dependence on consumer preference and propensity to spend
An important success factor in the drinks industry is the ability to interpret consumer preferences and tastes – particularly those of young people – and to continually adapt sales strategies to anticipate market trends and strengthen and consolidate the product image.
If the Group’s ability to understand and anticipate consumer tastes and expectations and to manage its own brands were to cease or decline significantly, this could considerably affect its activities and operating results.
Moreover, the unfavourable economic situation in certain markets is dampening the confidence of consumers, making them less likely to buy drinks.
Risks relating to legislation in the drinks industry
Activities relating to the alcoholic and soft drinks industry – production, distribution, export, import, sales and marketing – are governed by complex national and international legislation, often drafted with somewhat restrictive aims.
The requirement to make the legislation governing the health of consumers, particularly young people, ever more stringent could in the future lead to the adoption of new laws and regulations aimed at discouraging or reducing the consumption of alcoholic drinks. Such measures could include restrictions on advertising or tax increases for certain product categories.
Any tightening of regulations in the main countries in which the Group operates could lead to a fall in demand for its products.
Tax risks
At the reporting date, a tax dispute relating to the IPI (manufacturing tax) was pending with the Brazilian legal authorities. Also in Brazil, following the end of the year, a tax inspection report was received in regard to the payment of ICMS (the tax on the consumption of goods and services).
No provisions have been made for these tax risks based on current assumptions.
With reference to the Parent Company, a number of lawsuits were pending in relation to the tax period 2004. Some concern incorporated companies, for which sufficient risk provisions have already been made.
For additional details, see note 40 - Provisions for risks and charges, in the consolidated financial statements and note 34 - Provisions for risks and charges, in the Parent Company's financial statements.
Risks relating to environmental policy
The Group’s industrial activities do not carry any specific risks relating to environmental policy; however, its industrial management has implemented dedicated procedures relating to safety and qualitative controls in the area of environmental pollution and the disposal of solid waste and waste water.
These activities are carried out in compliance with the regulations in force in the countries in which the Group operates.
Risks relating to product compliance and safety
The Group is exposed to risks relating to its responsibility to ensure that its products are safe for consumption. It has therefore put in place procedures to ensure that products manufactured in Group plants are compliant and safe in terms of quality and hygiene, in accordance with the laws and regulations in force, and voluntary certification standards.
In addition, the Group has defined guidelines to be implemented if quality is accidentally compromised, such as withdrawing and recalling products from the market.
Risks relating to employees
In the various countries where the Group has subsidiaries, its dealings with employees are regulated and protected by collective labour agreements and the regulations in force locally.
Any reorganisation or restructuring undertaken, where this becomes essential for strategic reasons, is defined on the basis of plans agreed with employee representatives.
Moreover, the Group has implemented specific procedures to monitor safety in the workplace, and it is worth noting that the accident rate at Group plants is very low and that any accidents that do happen tend to be minor.
Exchange rate and other financial risks
Around 48.1% of the Group’s consolidated net sales in 2011 came from outside the European Union.
With the growth in the Group’s international operations in areas outside the euro zone, a significant fluctuation in exchange rates could hit the Group’s activities and operating results, particularly in relation to the US dollar, Australian dollar and Brazilian real.
For more information about financial risks, see note 45 - Nature and extent of risks arising from financial instruments.