ANDY BULGIN is risk manager for Coca-Cola HBC, the second-largest Coke bottling...

ANDY BULGIN is risk manager for Coca-Cola HBC, the second-largest Coke bottling operation in the world, with subsidiaries in 26 countries from Russia to Poland and Ireland to Nigeria. Adrian Leonard asked him about managing such a high-profile company's risk in diverse and sometimes challenging countries

Please describe CCHBC's risk management regime.

ANDY BULGIN Risk management sits within the group finance function. Its objective is to assist all operations in the creation of a system of internal control based on identification and management of risk, to safeguard the company's assets, comply with legislation and enhance the value of shareholders' investment. The ultimate intention is to embed this control system into usual business practice. Principal areas of concern are risk financing, safety and loss prevention (including business continuity planning) and business risk management.

Ultimate responsibility for risk management lies with the chief executive officer. Key business risks have been identified on a country-by-country basis by local senior management teams, who are also responsible for managing them. These key risks are updated on an annual basis as part of the business planning process. Country risks have been collated to identify group risks. These are regularly reviewed and discussed at the group audit committee.

The risk management function has evolved from the original risk and insurance function established in Coca-Cola Beverages plc, one of the companies merged to form CCHBC. External focus on corporate-governance-led risk management has allowed the function to develop into one dealing with the management of both insurance and non-insurance related risks.

What involvement does CCHBC centrally have in local risk management at its subsidiaries?

ANDY BULGIN Head office sets group risk management guidelines for all operations. These form part of the overall group standards framework, which each country is required to follow. At a more specific country-focused level, the risk management function provides assistance both in response to receipt of specific project information centrally, and as a result of local requests for help.

What has been done to embed a risk-aware culture in CCHBC?

ANDY BULGIN Each country operation has taken part in a business risk workshop where the local management team has identified and assessed key risks, and prepared an action plan to address them. Currently the key risk list is refreshed each year as part of the annual business planning process. We are looking to further enhance this process by introducing quarterly risk reviews that focus on demonstration of the management of key risks. Success in this risk management process can then be used as one of the components of our performance management system.

What tools does the company use to manage risk?

ANDY BULGIN Use of risk management practices as part of normal business is seen as the most effective tool to manage risks. Risk management forms part of most of the group's training programmes. In addition to this general training, specific courses are run in areas such as incident management, safety and loss prevention, and business continuity planning. Other functions, such as quality and treasury, also focus on risk management in their training programmes.This education programme enhances conventional insurance programmes and provides protection against risks which are difficult to insure or even uninsurable

Conventional risk transfer to insurers is still used extensively; our risk management profile has allowed us to maintain cost-effective programmes, despite the turbulence of the insurance market in recent years. We have investigated alternative risk transfer schemes for the last three years, but the results of these investigations have always proved less effective than conventional risk transfer options. We are, however, now looking at the introduction of a group captive to provide formal funding for risks which are difficult or impossible to insure within the conventional insurance market.

CCHBC has operations in a diverse selection of companies at varying stages of development. How does this diversity impact risk management?

ANDY BULGIN CCHBC categorises countries as either established, developing or emerging. Groupings have been devised on the basis of political and economic stability and development, regulatory environments, growth opportunities, customers and distribution infrastructures.

The significant difference in development terms between countries does not impact the group risk management approach. All countries are required to identify and manage their key risks. All territories are subject to the group physical risk management audit programme, and are required to try to achieve best practice risk management standards. All countries are required to meet mandatory quality standards. There is, however, a recognition of the relative level of development of different territories: those that are less developed receive more attention and training to try to bring them up to the level of the more sophisticated operations.

Does CCHBC take special risk management measures in less well regulated countries such as Russia and Belarus?

ANDY BULGIN All former Soviet Union territories are challenging from a business perspective, because of their geographical scale, relatively undeveloped infrastructure and border controls. Continuity of supply is vital, particularly given the difficulty in importing goods from other surrounding territories, so increased focus is given to protection of key sites and creation of business continuity plans. Risks arising from political and regulatory change are also carefully monitored in these territories.

Have risk management measures been taken to assess and mitigate potential risks such as changes in legislation or regulations that might affect the company, or changes among suppliers and competitors?

ANDY BULGIN Changes in legislation and regulations, and suppliers and competitors, are recognised as key risks facing the group. Monitoring these changes at both group and local level is mandatory risk management action. We comply with risk regulation as it applies to us at the moment. We actively monitor potential future changes and ensure that these changes are incorporated in group practice as they are enacted.

CCHBC has come through a merger and been active in acquisitions, most recently acquiring an Austrian water bottler in July. What role does risk management play in these transactions?

ANDY BULGIN Group risk management processes, particularly in the areas of due diligence and the setting of appropriate investment valuation hurdle rates, are followed as part of all merger and acquisition activities. But rapid growth makes it more difficult to maintain appropriate quality and performance standards. This can potentially lead to erosion of brand and shareholder value. There are three things which are probably essential to management of this: establishment of consistent group control standards, communication of these group-wide, and provision of training and education to new operations within the group as soon after they join as possible.

A few years ago, another company in the Coca-Cola family was affected by a product contamination scare. What measures have been taken to minimise and mitigate such risks at CCHBC?

ANDY BULGIN There are two key elements to be addressed in relation to such issues, prevention and effective management of an issue should it occur. From a preventative standpoint, significant focus has been placed on quality control, to ensure that standards across the group are universally high. Should an incident occur, all operations have been trained to respond so as to protect consumers and to minimise impact to the business.

Adrian Leonard is insurance market correspondent, StrategicRISK