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Risk Management

EVALUATING THE OPERATIONAL LANDSCAPE AND STAYING

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Risk management is integral to Marico’s strategy. We believe that success of an organization hinges not only on its ability to explore and exploit business opportunities, but also on the quality of its risk management processes.

In today globalized environment, which is deeply interconnected through a continuous flow of goods, services, capital, people, data and ideas, occurrences of unforeseen events such as the COVID-19 pandemic, geopolitical tensions, etc. can also impact business models. In this context, it is imperative for companies to have a comprehensive risk management strategy to ensure business continuity, in addition to agile and efficient operations.

Our risk management framework comprises identifying material risks, analysing their likelihood, quantifying their consequential impact, and preparing our response plan for the same.

Risk management framework

Identify

Identify risk material to each function/business

Implement

Implement the risk mitigation plan

Monitor

Monitor the progress of risk mitigation plan Periodically review the risks and related metrics.

Quantify

Evaluate the risks based on ‘impact‘ and ‘vulnerability‘ 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

Risk Management Committees

The Risk Management Committee monitors and reviews the risk management plan and provides guidance on the mitigation strategies.

Risk Management Committee (RMC)

Continuous monitoring of the identified risks is a part of our institutionalised process, where we track the effectiveness of our efforts and update the Risk Management Committee on the progress. Risk related issues, if any, are discussed at review meetings.

Material Risks and Mitigation Strategies

Our risk management process evaluates all significant business processes to identify risks that are classifiable under following categories:

Strategic risks

Financial risks

Operational risks

Compliance and Governance risks

Environmental and Social risks

Strategic risks

Risk Type and Description

Changing consumer preferences

Consumer tastes, preferences and behaviours have been evolving over the years, due to various factors, such as cultural shifts, demographic changes, technological advancements, or emerging trends.. This trend has only accelerated after unexpected events post the outbreak of the pandemic. WithIn addition, with increasing social media/digital media penetration penetration, brand awareness levels and deepening reach of branded goods , the speed of the pace of shifts in consumer preferences has dramatically risen. It is, therefore, an imperative that our portfolio and brand communication also evolvess in line with consumer expectations demand so that we continue to remain relevant and competitive in our categories.

Increasing Competitive intensity

With the increasing number of competing brands across offline and online marketplaces, counter campaigning and aggressive pricing by competitors, maintaining brand relevance, market shares and pricing power is critical to sustained growth.

Underperformance of new product launches

Given that the success rate for new product launches in the FMCG sector is typically low, new products may not gain traction among consumers or may fail to scale up as planned.

Underachievement of acquisition deliverables

Acquisitions may impose a financial burden on the parent entity, if the acquired business significantly underperforms vis-a-vis expectations. The integration of operations and cultural harmonisation may also take time, thereby deferring benefits of synergies.

Underperformance in external evaluation (ratings and rankings) based on financial and non-financial performance (ESG and other sustainability related metrics) of the company by government or market entities

Transparency around financial and non-financial performance of the Company and regular communication is critical for building stakeholder trust and market credibility.

Mitigation Strategies

  • Investment in consumer in-sighting to adapt to changing consumer preferences
  • Actively monitor social media trends to spot early consumer trends; quickly respond to these trends with innovative offerings that lead with quality, safety and nutritional quotient
  • Shape a brand communication to effectively reach the consumer and convey its proposition and purpose
  • Frequent consumer awareness campaigns and outreach initiatives to demonstrate the nutritional value of products and the use of safe ingredients to enhance product responsibility
  • Diversification in product offerings and ensuring availability in relevant channels, thereby leading to wider presence and reach
  • Protect consumer franchise during periods of short-term volatility or headwinds
  • Invest in brand building through responsible marketing campaigns
  • Building agile marketing response mechanisms to counter competitive moves
  • 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 new ideas in the chosen categories for driving growth
  • Resilient presence in marketplace with adequate investments in brand building
  • A well-defined playbook 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 take over to ensure controls
  • Enhanced communication on annual performance on material topics
  • Continuous efforts to align disclosures with established standard frameworks at national and global level.
  • Frequently update company’s initiatives, actions, and progress on platforms accessible to stakeholders
  • Communication channels for stakeholders to enquire, register grievances, and provide feedback

Financial Risks

Risk Type and Description

Volatility in interest rates

The FMCG sector is not capital intensive, although fund requirements arise on account of inventory position building, capital expenditure undertaken or funding inorganic growth. Changes in the interest regime and in the terms of borrowing could impact the financial performance of the Company. Additionally, this risk may also impact income on the Company’s investment and lead to mark-to-market losses on its investment portfolio.

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. The risk of currency depreciation is accentuated during periods of high inflation in these economies.

Mitigation Strategies

  • 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 on investments by implementing a Board-approved investment policy, which focuses on safety and liquidity, thereby mitigating short-term interest risks
  • 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 reviewed periodically for its effectiveness.

Operational Risks

Risk Type and Description

Commodity Risks

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 high.

Global Events

Unprecedented and unpredictable events including pandemic, political instability, civil unrest can significantly impact business results.

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

Cyber and data security

Disruption in business operation due to nonavailability of critical Information Systems through cyber-attack and loss of sensitive information due to unauthorised access.

Mitigation Strategies

  • A comprehensive process manual drives commodity procurement for each category, which governs norms related to price discovery, inventory policy, supplier management, governance mechanism, among others
  • The Company policy defines the 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 on the exchanges
  • The Company has developed and deployed various programmes in order to ensure sustainable availability of agriculture commodities to support future business requirements. Few of the programmes are:
    1. a) Sponsoring research in agriculture breeding technology;
    2. b) Developing strategic souring alternatives from other geographies;
    3. c) Strategic presence in the extended backward value chain
  • The Company has well-defined norms for building strategic inventory positions as a hedge against price volatility.
  • A comprehensive insurance programme to hedge all insurable risks
  • At a macro level, our country selection template lay emphasis on geopolitical stability and robust growth prospects
  • Focus on providing value-added products and making it available to the masses at affordable prices by driving aggressive cost management
  • Focus on franchise growth over short-term profitability during macro-economic headwinds
  • Thrust on portfolio diversification as one of the pivots of future growth
  • Identification of business critical IT systems and having a disaster recovery plan in place. The plans are tested periodically for scope of enhancements
  • Implementation of IT security practices in line with ISO 27001 standard
  • Implementation of latest cyber security technologies with preventive, detective and reactive controls
  • We perform periodic internal assessments for the controls implemented to ensure continuity of operations
  • Mock Runs are conducted to ensure that all controls are performing as expected and all relevant stakeholders are aligned on their roles in the event of a cyber-crisis

Environmental and Social Risks

Risk Type and Description

Freshwater Availability

Marico relies on agricultural produce for raw materials. Water shortages can lead to supply chain disruptions, crop failures and increased production costs.

Agricultural Productivity

Low agricultural productivity and related disruptions can negatively affect availability of raw materials.

Climate Change

There is an increasing expectation from stakeholders to decarbonize operations to align with global goals. Any shortcomings or gaps in the performance against net zero targets may hamper stakeholder’s trust in the company.

Employee Health, Safety, and Wellbeing

Any risk to safety, health and well-being in operations are detrimental to employee’s motivation and productivity. A safe and positive work environment is critical for creative problem solving and innovation.

Talent acquisition and retention

It is critical to attract and retain top talent to remain competitive, drive innovation, increase productivity, enhance customer satisfaction, and build a strong employer brand. By prioritizing talent acquisition and retention, organizations can position themselves for long-term success and growth.

Management of environmental and social risks in value chain, e.g., climate related risks, human rights, health & safety, ethics

Management and assessment of environmental and social risks in the value chain is crucial to safeguard corporate reputation, ensure legal compliance, enhance supply chain resilience, reduce costs, engage stakeholders, seize market opportunities, and contribute to long-term sustainability.

Social license to operate

Acceptance by the surrounding community, stakeholders, and society enables organizations to protect their reputation, access resources and markets, promote sustainable practices, build strong relationships and contribute positively to society

Mitigation Strategies

  • Source water vulnerability assessment for all operations (using scientific tools and methods) to identify water stress quotients near Marico’s manufacturing footprint.
  • Undertake water conservation efforts through various capacity creation measures measures in collaboration with community.
  • Reduce freshwater consumption at manufacturing facilities
  • Mapping of physical climate risks across the agri-value chain.
  • Establishing traceability of agro-based raw materials directly from the place of origin
  • Boosting productivity and livelihood generation for farmers by deploying sustainable agricultural techniques
  • Reduction in direct and indirect GHG emissions through:
    1. > Investment in low-carbon technologies and equipment
    2. > Increase in share of renewable and clean energy
    3. > Carbon sequestration through afforestation
  • Carbon offset mechanisms
  • Engagement with critical value-chain partners for GHG emission reduction
  • Focus on reducing risk exposure and enhancement of mitigation practices across facilities though training, monitoring, and implementation of safe practices
  • Promoting Occupational Health & Safety and social accountability related policies to demonstrate safe and socially inclusive behaviour at workplace
  • Driving employee engagement and wellbeing programmes for better mental health and stress-free life
  • Investing in ‘hiring right’, ‘talent development and engagement’ best practices
  • Instituting development plans to upskill and reskill employees for future roles and bringing in flexible talent to access new skills
  • Promoting culture of diversity, trust, inclusion, openness, transparency, and meritocracy, coupled with growth orientation
  • The implementation of responsible sourcing framework SAMYUT for critical suppliers - raw material, packaging material suppliers, depots and warehouses, third-party manufacturing units
  • Advocating business ethics and human rights principles through trainings and business communications for all suppliers to help them imbibe human rights principles in their operations
  • Utilise supplier evaluation and engagement platform to eliminate risks wherever possible
  • Develop collaborative actions with value chain partners to mitigate environmental and social risks in the value chain
  • Constant engagement with local community stakeholders to understand their needs
  • Continue to implement social outreach programmes and initiatives to deliver socio-economic, environmental, educational and healthrelated benefits
© 2023 Marico