Risks and Opportunities

Mitigating new-age challenges

At Marico, we have a well-established mechanism for risk management that straddles both the external environment and internal processes. The unique circumstances of the times have made it imperative to revisit the mechanism.

We believe that by reimagining the risk mitigation strategy, we will be able to lead with greater agility, efficiency and be able to deliver materially improved outcomes.

The identification, assessment and mitigation of risks is a perpetual enterprise-wide process and an irreplaceable part of our long-term strategic thinking. Our risk management framework covers strategic, financial, operational and ESG risks, as we aim to consistently create value and build a sustainable future for all stakeholders. We believe that the importance of embedding this discipline in the business culture of the organisation cannot be overemphasised, especially in the VUCA world that we operate in today.

Pawan Agrawal Chief Financial Officer

The COVID-19 pandemic has ushered in newer dimensions of risks, pushing organisations to recalibrate their risk mitigation strategy. As part of this transformed business focus, it has become imperative for us at Marico to embed strategic, financial and non-financial risk mitigation in all aspects of our business strategies and transformation agenda.

Marico’s risk management process, therefore, strives to analyse all significant business processes across the value chain keeping in mind the following types of risks:

Strategic
risk

Compliance and
Governance risk

Financial
risk

Environmental
risk

Operational
risk

Social
risk

Risk Management Committee (RMC)

Comprises Chairman of the Board, Managing Director and CEO, and the Chief Financial Officer

Assists the Board and Audit Committee

Material risks are reviewed annually by the RMC

Manages risks both at strategic and operational level

Risk Management Framework

Identify

Identify top risk for each function/business unit level

Quantify

Rate the risks on ‘impact’ and ‘vulnerability’ factors Prioritise top 10 risks at the Company level

Plan

Develop mitigation plan for each risk with relevant efforts and result metrics
Recommend the plan to the Board for approval

Implement

Implement the risk mitigation plan

Monitor

Examine whether the mitigation plans are on track. Periodically review the existing risks and related metrics

Strategic
Risks		 MITIGATION
STRATEGY		 STAKEHOLDERS
IMPACTED		 CAPITALS
IMPACTED

Changing consumer preference

Demand can be adversely affected due to shift in consumer preferences, especially those induced by the pandemic. Given the potential of social media, the speed of such a shift could be unparalleled.
Investment in consumer in-sighting to adapt to changing consumer preferences
Actively monitor social intelligence signals to spot early consumer trends; quickly respond to these trends with innovative offerings that guarantee quality, safety and nutritional quotient.
Frequent consumer awareness campaigns and outreach initiatives to demonstrate the nutritional value of products and the use of safe ingredients to enhance product responsibility with innovative offerings that guarantee quality, safety and nutritional quotient.

Competitive market conditions

Increase in the number of competing brands in the marketplace, counter campaigning and aggressive pricing by competitors could create a disruption.
Diversification in product offerings (entered into categories such as healthy and nutritional foods, male grooming, skincare, premium haircare and hygiene).
Protect volumes in preference to short-term profitability.
Invest in brand building through responsible marketing campaigns.
Agile response mechanism to counter competitive moves.

Underperformance of new product launches

The success rate of new product launches in the FMCG sector is typically low. New products may not be accepted by the consumer or may fail to achieve the sales target. This risk is even more pronounced in cases where industry leaders invest in creating new categories.
Invest in a new product development process with a funnel approach to ensure continuous flow of new ideas coupled with rigorous governance around scalable ideas.
Prototyping approach to new product introductions for accelerated learning and adjustment
Identify and invest in big-ticket ideas in chosen categories for driving growth.
Resilient presence in marketplace with adequate investments in brand building.

Private labels

Expansion of modern trade and e-commerce could lead to the emergence of private labels.
Invest in brand building to improve the saliency of own brands in consumers’ mind and partner with modern trade and e-commerce in category management.
Financial
Risks		 MITIGATION
STRATEGY		 STAKEHOLDERS
IMPACTED		 CAPITALS
IMPACTED

Volatility in interest rates

Though the FMCG sector is not capital intensive, fund requirements arise on account of inventory position building, capital expenditure undertaken or for the funding of inorganic growth. Changes in the interest regime and in the terms of borrowing could impact the financial performance of the Company. Further, this risk may also impact income on the Company’s investment and mark-to-mark hit on its investment portfolio.
Well-defined framework for capital gearing.
Maintain a liquidity chest for immediate working capital requirements.
In case of foreign currency borrowings, implement hedging as per policy.
Manage interest rate risk to investments by implementing Board-approved investment policy which focuses on safety and liquidity, thereby mitigating short-term interest risks.

Foreign currency exposure

Marico has significant local presence in Bangladesh, South East Asia, the Middle East, Egypt and South Africa. The Company is thus exposed to a wide variety of currencies. Fluctuations in these currencies could impact the Company’s financial performance.
While the ‘translation risk’ will continue to be unhedged, Marico has a well-defined hedging framework for managing any foreign exchange risk in India and Bangladesh. The Board-approved policy in this regard is periodically reviewed for its effectiveness.

Macro-economic factors

Factors such as low GDP growth and high food inflation could result in down trading from branded to non-branded or premium to mass market products.
Focus on value-added products available to masses at affordable prices by driving aggressive cost management.
Focus on franchise growth in preference to short-term profitability.
Portfolio diversification, which is one of the pivots of future growth.

Cyber and data security

Disruption in business operations due to nonavailability of critical IT systems through cyber-attack and loss of sensitive information due to unauthorised access.
Identification of business critical IT systems and putting in place disaster recovery plan. The plans are tested periodically and kept relevant.
Implementation of IT security practices in line with ISO 27001 standard.
Implementation of latest cyber-security technologies with preventive, detective and reactive controls
Operational
Risks		 MITIGATION
STRATEGY		 STAKEHOLDERS
IMPACTED		 CAPITALS
IMPACTED

Commodity risk

Unexpected changes in commodity prices and supply could impact business margins and ability to service demand. The past few years have witnessed wide fluctuations in input prices. As a result, the overall uncertainty in the environment continues to be.
Commodity procurement is driven by comprehensive process manual for each category which governs norms related to price discovery, inventory policy, supplier management, governance mechanism.
Company policy defines purchase of commodity in line with business requirement in accordance with inventory policy and does not encourage speculative buying or trading of said commodity either in physical form or in exchanges.
Company has developed and deployed various programmes in order to ensure sustainable availability of agricultural commodities to support future business requirements. Few of these programmes are:
  • Sponsoring research in agriculture breeding technology;
  • Developing strategic sourcing alternatives from other geographies;
  • Strategic presence in extended backward value chain.
The Company has well-defined norms for building strategic inventory positions as a hedge against price volatility.

Political instability in operating geographies

Unrest and instability in countries of operation could significantly impact business results.
A comprehensive insurance programme to hedge all insurable risks.
At a macro-level, our country selection template emphasises geopolitical stability and robust growth prospects.

Underperformance of acquisition deliverables

Acquisitions may impose a financial burden on the parent entity. Integration of operations and cultural harmonisation may also take time, thereby deferring benefits of synergies.
A well-defined play book for selection of targets, due diligence, value finalisation and integration.
Well-defined performance tracking systems for monitoring progress periodically.
Cross-application of governance practices of the parent organisation soon after takeover to ensure controls.
Compliance and
Governance Risks		 MITIGATION
STRATEGY		 STAKEHOLDERS
IMPACTED		 CAPITALS
IMPACTED

Non-compliance with regulatory requirements

Inadequate compliance systems and processes can pose reputation risk for the Company. This could expose the Company to legal consequences, result in financial losses and penalties.
Invest in IT-enabled compliance systems and processes.
Ensure all functions and units are aware of the laws and regulations to comply with.
Ensure adequate monitoring mechanism towards compliance.
Communicate periodically to reiterate the importance of compliance.

Enforcement of business ethics and integrity across the value chain

Marico considers business ethics and integrity to be an integral part of operating its value chain. The valuechain partners and business associates are expected to follow the Code of Conduct with the same rigour and responsibility as Marico members do. Hence spreading the awareness and behavioural discipline across the value chain is a critical business issue.
Code of Conduct (CoC) and Marico Code of Business Ethics (MCoBE) outline the Company’s commitment to ethics and integrity.
Robust vigil mechanism which enables all stakeholders to report concerns about unethical behaviour, fraud or violation of Code and provides safeguards against victimisation of whistle blowers.
Detailed personal orientation and mandatory certification on CoC for all employees, suppliers and contractual workers.
Effective oversight by the Audit Committee, Nomination & Remuneration Committee and the Board of Directors.
Environmental
Risks		 MITIGATION
STRATEGY		 STAKEHOLDERS
IMPACTED		 CAPITALS
IMPACTED

Disruption due to climate change events

Climate change related events that have the potential to disrupt Marico’s operations include changes in weather patterns such as increased temperatures and altered rainfall patterns. These may potentially affect the planning and day-to-day operation as the risk arises from availability of agriculture input materials, climate related policy changes, evolving regulations and increased consumer concerns.
Embrace climate change adaption and mitigation measures.
Promote scientific farming practices that are resilient to climate related adverse impacts.
Continuous monitoring of environmental policies and regulations.
Investment in low-carbon technologies and equipment, renewable and clean energy sources.
Adoption of CDP disclosures and other industry-recognised standards and guidelines to minimise sustainability footprint of products, processes and facilities.

Adverse impact of energy and water scarcity

Energy and water are crucial to our business and dayto- day operations. Their non-availability will lead to operational disruptions and will impact production plans and product delivery.
Continuous focus on energy efficiency and conservation measures
Investment in energy-efficient systems that have lower carbon footprint.
Integrating Zero Liquid Discharge principles for optimising water consumption in facilities. Comprehensive watershed management programmes leading to rainwater harvesting and ground water recharge that augment supply and water availability for community.

Handling of plastic packaging and waste

Consumers’ and community response to the environmental impact of plastic wastes and new regulations by different state governments on the ban of certain plastics, require us to find sustainable packaging solutions
Adoption of circular approach based on 4R – reduce, recycle, replace and recover.
Investment in R&D measures to enable design innovations and reduce weight of plastic used under Marico’s value enhancement approach.
Strategic partnerships, collaborations and innovation-led programmes to drive penetration of recyclable and enhanced use of recycled plastics.
Honour obligations under the Extended Producers’ Responsibility (EPR) commitments
Continuous monitoring and tracking of plastic waste policies and regulations.
Awareness and communication to consumers and community on collection, segregation and safe disposal of plastic waste.
Social
Risks		 MITIGATION
STRATEGY		 STAKEHOLDERS
IMPACTED		 CAPITALS
IMPACTED

Talent acquisition and retention

Mismatch in hiring and attrition of skilled talent may adversely affect the Company’s ability to pursue its growth strategies effectively.
Marico’s culture of diversity, inclusion openness, transparency and meritocracy coupled with its growth orientation help attract top talent.
Marico’s talent value proposition of building challenging, enriching and fulfilling careers is aimed at retaining top talent.
Invest in ‘hiring right’ and ‘talent development and engagement’ best practices.
Equal, diverse and inclusive workforce in terms of skills, ethnicity, nationalities and gender.

Social license to operate

Social licence to operate refers to the level of acceptance by local communities in proximity to our operations. The absence of understanding and inability to maintain a harmonious relationship with communities could result in damage to our brand, reputation and pose risk to our operations.
Commitment to responsible and inclusive growth in all social outreach programmes and initiatives with an aim to accelerate community sustenance.
Constant engagement with local community stakeholders to understand their needs.

Changing consumers’ expectations due to product quality and safety related shifts

The quality and safety of our products are of paramount importance for our brands and our reputation. Shifting consumer preferences and demands cause a surge in expectations on product quality, safety and R&D related efforts for the organisation
Robust system to ensure compliance to regulatory requirements.
Assessment of quality and safety aspects of products at each stage in the value chain
Stringent quality and safety compliance check for suppliers before inducting them into the system.
Ingredients’ assessment in line with the requirements set for their usage according to the law of the land.
Facilitate consumer feedback on product safety and quality through dedicated Consumer Service Cell (CSC).
Robust crisis management framework.

Critical incident risks related to workplace health and safety

Safety and health at workplace are critical aspects of driving operational excellence. As per Marico’s overall purpose and ethos, taking utmost care of safety, health and security of all Marico members and contractual employees is a non-negotiable attribute of our commitment to create shared value for all. We strive to reduce operational risks and mitigate workplace hazards to safeguard lives, improve efficiency and optimise production schedules.
Robust Safety, Health and Environmental (SHE) policy that equips facility personnel with measurable, easily implementable, and pragmatic knowledge to demonstrate safe behaviour at workplace.

© 2021 Marico.