Fraser & Neave Holdings Bhd Annual Report 2019

WWW . F N . C O M . M Y 070 F R A S E R & N E A V E H O L D I N G S B H D st rategic repor t > PRINCIPAL/KEY RISKS AND MITIGATION COMMODITIES AND MATERIAL PRICES Commodities and material prices are influenced by the global & local supply and demand, weather conditions as well as regulatory changes imposed by the government. As such, any significant increase in prices of commodities and materials could materially affect the cost of our products. • Commodities and materials price risk is managed through forward purchase of key commodities, active monitoring of commodities price trends, and vigilant sales forecasting and production planning. • In addition, we also source from multiple suppliers and origin of commodities/materials as listed in our approved vendors list to enable us to respond ably in the event of shortage in supply and/or increase in price. • We also hedge our purchases using our enlarged and collective purchasing capability. FOREIGN CURRENCY EXCHANGE EXPOSURE In times of foreign currency market volatility, the Group is exposed to the risk of fluctuations in foreign exchange rates against the local currency due to: • Importation of materials for production; • Exports of goods are traded in foreign currency; and • Overseas operations are valued in foreign currencies. • The Group is guided by the Group Treasury Policy which outlines the policy in hedging the identified and committed foreign exchange exposure. • Typically, at least 60 per cent of our forex requirements are hedged to manage fluctuating prices of commodities as well as forex movements. • Exports serve as additional natural hedge to cushion the impact of depreciating local currencies. EXPOSURE TO FOOD SAFETY RISK As a player in the food & beverage industry, the Group is exposed to the risks associated with product quality and standards as product safety and quality are of paramount importance to the Group. The exposure in product quality and standards may bring serious ramifications in terms of financial impact as well as reputational impact. • Quality assurance cycle begins with suppliers’ pre-qualification and approval, source or origin of raw materials, manufacturing facilities and procedures, up to the distribution and storage of our products. • Comprehensive policies and procedures established on processing, packaging and storage, equipment and plant sanitisation as well as employee personal hygiene to prevent contamination. • Compliance with stringent quality systems in place such as ISO 22000, Food Safety System Certification 22000 and HACCP Certification by Ministry of Health. • Contingency plans on product traceability and product recall/ withdrawal should such circumstances arise. RISK MITIGATION ACTIONS LINK TO MATERIAL ISSUES Economic Performance Sustainable Sourcing Consumer Health & Safety Occupational Health & Safety Innovation Creating Value for Society Packaging Product & Service Labelling