Risks
Last updated: March 4, 2024
The most significant strategic risks
Changes in the business environment driven by regulation and sustainability present significant risk and opportunity. The company’s future growth and success depend on its continued ability to predict and respond to changes and its ability to innovate and develop new sustainable products and solutions in a timely manner. Regulatory changes may introduce material bans and other packaging related regulations including recycled content requirements impacting packaging industry. Further, these regulatory changes include a level of unpredictability, especially in certain geographics. To mitigate the threats, Huhtamaki is investing in new innovative and sustainable solutions. Huhtamaki is also focused on driving an evidence-based discussion to deliver data on the value of packaging in terms of hygiene, food safety, food availability and food waste prevention. Furthermore, Huhtamaki actively tracks early stages of regulatory initiatives and potential regulatory changes to reflect these in the development and commercialization of its products and solutions.
The key risks and opportunities to Huhtamaki’s competitiveness arise from changes in competitive landscape. Further, capability to adapt to changes in consumer and customer preferences as well as to changes in technologies and shifts in materials presents a risk and opportunity. Understanding consumers enables Huhtamaki to realize business opportunities in building long-term sustainable growth in partnership with its customers. Activities to manage the threats and seize the opportunities involve active dialogue with the customers to develop ways to increase value and understand Huhtamaki's competitive position as well as cross-functional and cross-segment collaboration at Huhtamaki. To mitigate the risk of its technology and machinery becoming outdated, inefficient or unfit for serving customer demand, the Group continuously monitors and anticipates also long term needs and has focus on research and development and also protection of intellectual property. Huhtamaki is also actively working on strategic partnerships and M&A to secure a competitive advantage on new technology innovations.
Macro-level uncertainties include political risks, macroeconomic risks and recession risks. Unstable political conditions and geopolitical instability increase the uncertainties in global trade and worsen business conditions. Further, trade restrictions and trade wars may slow down investment and economic growth in impacted geographies. Challenging economic conditions typically have impact on customer behavior and purchasing power. Wars in Ukraine and Israel-Gaza region, high inflation rates and high interest rates are examples of recent events affecting the macro environment. Huhtamaki is actively monitoring the developments so that it can react to changes relevant in its business environment.
In terms of human resources, the key risks and opportunities are identified to arise from availability of labor and talent. The risk management actions include consistent talent review and succession planning, career development programs, solid recruitment process as well as constant development of employee promise and employer image.
Operational and financial risks
Risks and opportunities related to the ability to manage prices so that price changes are implemented in a timely manner and with correct cost and market intelligence data as well as the ability to pass increases in the cost of raw materials, energy and transportation to the price of the products are key for the Group. Risk management actions include ongoing monitoring of raw material and energy costs and focus on contract management with energy and material escalation clauses included in customer contracts when possible.
Risks related to property damage and IT infrastructure, systems and applications are operational risks potentially impacting the business continuity of Huhtamaki. The company performs a continuous improvement program in property risk control, mitigating the impact and likelihood of hazards, such as fire, explosion, flood or windstorm, that may lead to property damage and business interruption. To minimize the impact of a potential business interruption, Huhtamaki further develops its disaster recovery and business continuity plans and allocates manufacturing capacity to several locations. Huhtamaki is also further developing its IT environment including ERP systems, to enhance productivity and mitigate cyber and other business interruption risks.
Risk related to non-compliance with laws and sanctions include risk of penalties or claims for compensation, or indictment due to a failure to comply with applicable legislation such as anti-bribery, competition, product, environmental or other legislation or applicable sanctions. Key risk management actions include policies and processes to identify and mitigate the non-compliances, and training on various compliance topics.
None of the key risks identified in connection with the 2023 risk assessment is considered of a magnitude that could not be managed or would endanger the implementation of Huhtamaki’s 2030 Strategy. When considered necessary, appropriate risk treatment actions may also involve a risk transfer by means of insurance. The Group maintains several global insurance programs. The need for insurance, including the adequacy of its scope and limits, is continuously evaluated by the Global Risk Management function.