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Principal risks

The principal risks facing the group and considered by the board are detailed below. The group's well-developed risk management process is described in the corporate governance section while financial risks are discussed in the Chief Financial Officer's review and in note 22 to the consolidated financial statements in our 2013 Annual Report.

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Risk: Industry consolidation

Context
The global brewing and beverages industry is expected to continue to consolidate. There will continue to be opportunities to enter attractive growth markets, to realise synergy benefits from integration and to leverage our global scale.

Specific risks we face

  • Failing to participate in value-adding transactions.
  • Paying too much to acquire a business.
  • Not implementing integration plans successfully.
  • Failing to identify and develop new approaches to market and category entry.

Possible impact
Lower growth rate, profitability and financial returns.

Mitigation

  • Potential transactions are subject to rigorous analysis. Only opportunities with potential to create value are pursued.
  • Proven integration processes, procedures and practices are applied to ensure delivery of expected returns.
  • Activities to deliver synergies and leverage scale are in place, monitored closely and continuously enhanced.
  • Develop non-traditional capabilities to enter and grow profitably in new markets.

Associated strategic priorities

Risk: Change in consumer preferences

Context
Consumer tastes and behaviours are constantly evolving, and at an increasingly rapid rate. Competition in the beverage industry is expanding and becoming more fragmented, complex and sophisticated.

Specific risks we face

  • Failing to develop and ensure the strength and relevance of our brands with consumers, shoppers and customers.
  • Failing to respond in an adequate and timely manner to rapidly changing consumer preferences and behaviours.
  • Failing to continue to improve our commercial capabilities to deliver brand propositions that meet consumer, shopper and customer needs

Possible impact
Market positions come under pressure, lower top line growth rates and profitability.

Mitigation

  • Ongoing evaluation of our brand portfolios in every market to ensure that they target current and future opportunities for profitable growth.
  • Building our brand equities through innovation and compelling marketing programmes.
  • Ensuring we have deep understanding of changing consumer and industry dynamics in key markets, enabling us to respond appropriately to issues which may impact our business performance.
  • Continued enhancement of the SABMiller Marketing Way which sets out the best practice approach for our commercial processes.
  • Focus on monitoring and benchmarking commercial performance and developing the critical commercial capabilities that are required in order to win in local markets.

Associated strategic priorities

Risk: Management capability

Context
We believe that our people are our enduring advantage and therefore it is essential that we develop and maintain global management capability.

Specific risks we face

  • Failing to identify, develop and retain a sufficient pipeline of talented managers for the present and future needs of the group.

Possible impact
Lower long-term profitable growth.

Mitigation

  • Further develop our leadership talent pipeline through our Global Talent Management model and strategic people resourcing.
  • Sustaining a strong culture of accountability, empowerment and personal development.
  • Standardisation of key processes and best practices across the group through the roll-out of the SABMiller Ways.

Associated strategic priorities

Risk: Regulatory changes

Context
With increasing and high-profile debate over alcohol consumption in many markets, the alcohol industry is coming under increasing pressure from national and international regulators, NGOs and tax authorities.

Specific risks we face

  • Regulation places increasing restrictions on the availability and marketing of beer.
  • Tax and excise changes cause pressure on pricing.

Possible impact
Lower growth, profitability and contribution to local communities in some countries.

Mitigation

  • Rigorous adherence to the principle of self-regulation backed by appropriate policies and management review.
  • Constructive engagement with government and all external stakeholders on alcohol-related issues.
  • Investment to improve the economic and social impact of our businesses in local communities and working in partnership with local governments and NGOs.

Associated strategic priorities

Risk: Acquisition of Foster's

Context
Following the Foster's acquisition, we have committed to delivering an integration plan with value creation defined by specific, communicated medium-term targets, synergies and cost savings from the Foster's business.

Specific risks we face

  • Failing to deliver integration objectives and commercial and operational excellence targets communicated as part of the integration plan.
  • Failing to achieve the synergy and cost saving commitments of the transaction.

Possible impact
Lower growth rates and profitability. Damage to our reputation for strong commercial capability and for making value-creating acquisitions.

Mitigation

  • Embedding of the SABMiller Ways (processes, systems and tools) throughout the Foster's business.
  • Ongoing monitoring of progress versus the integration plan, including frequent and regular tracking of key performance indicators.

Associated strategic priorities

Risk: Delivering business transformation

Context
The group continues to execute a major business capability programme that will simplify processes, reduce costs and allow local management teams to focus more closely on their markets.

Specific risks we face

  • Failing to derive the expected benefits from the projects currently under way.
  • Failing to contain programme costs or ensure execution is in line with planned timelines.

Possible impact
Increased programme costs, delays in benefit realisation, business disruption, reduced competitive advantage in the medium term.

Mitigation

  • Senior leadership closely involved in monitoring progress and in making key decisions.
  • Mechanisms in place to track both costs and benefits.
  • Rigorous programme management and governance processes with dedicated resources and clear accountability.

Associated strategic priorities