Risk Management
Risk Management Policy
Our risk management policy contemplates a broad range of stakeholders, including
fixed income investors, equity investors, and the communities where we operate.
Risk management is an integral part of the Firm's governance structure. The
Firm's risk management approach is established to identify and analyse risks
faced by JAB Holding Company, to monitor risks and to implement remediation
initiatives to ensure adherence to limits. The risk management approach is reviewed
regularly to reflect changes in market conditions and the activities of JAB.
In practice, we monitor closely topics related to:
- Capital structure, financing, and liquidity
- Transactional risks
- Translational and balance sheet risk
- Counterparty credit risk (cash, marketable securities and derivatives)
- Environmental, Social, Governance and Reputation risks
Principal Risks and Uncertainties
Our financial position is impacted by the performance of our investments, including the
resulting impact on valuation. By having a controlling or anchor stake in our
investments, and via representation on the Boards, we are able to oversee and influence
the financial and operational performance of our portfolio companies, with the aim to
achieve solid compounded investment returns.
The loss of key talent could have a negative impact on our operations. This risk is
mitigated by investment and long-term equity opportunity of our leadership teams, and by
promoting a culture of ownership and opportunity. In this way we continue to attract
talented people with the mindset and skillsets to drive long-term value creation.
The impact of the COVID-19 pandemic remains unpredictable and, if significant, may have
an adverse effect on our business, financial condition, results of operations and
prospects. After taking initial measures to protect our employees, customers and
businesses, COVID-19 provides an opportunity to accelerate business transformations. We
believe COVID-19 accelerates trends, such as digitisation and channel-expansion, and we
will continue to support our businesses to adapt to these trends and emerge out of the
crisis even stronger.
From our investing and financing activities, we are exposed to a variety of risks
including market risks, price risk, credit risk, liquidity risk, and cash flow risk. It
is our objective to manage and mitigate these risks to acceptable levels. Market risk
refers to the Firm's exposure to fluctuations in foreign exchange rates and interest
rates. Foreign exchange risk on transactions is hedged through forward exchange
contracts as necessary. The Firm is exposed to price risk as a result of its investments
and subsidiaries. This exposure is not hedged as at 31 December 2020. We actively manage
our exposure to interest rate fluctuations. When the Firm is exposed to such fluctuations
on floating rate long-term debt the Firm enters, when thresholds have been exceeded, into
interest swap agreements. Our exposure to credit risk mainly relates to cash and cash
equivalents and is mitigated by transacting with counterparties with high credit ratings.
Exposure to liquidity risk is limited, as sufficient liquidity is available in the form
of cash, and under our credit facilities.
Within our risk management framework continued consideration is given to fraud risk. Our
approach is to minimize fraud risks from the start, both internal and external, and to
continuously monitor and update our procedures to detect and if applicable remediate from
potential fraudulent events. As an example, our Code of Conduct outlines the norms, and
responsibility of our team with the aim to reduce the likelihood of unethical actions
and to protect JAB and its stakeholders.
As a long-term investor we are dedicated to having our businesses acting in accordance
with the highest ethical and professional standards and together address Environmental,
Social, Governance and Reputation risks. We are committed to an investment management
philosophy of working with our businesses to address and monitor their material
sustainability issues. JAB incorporates sustainability issues into decision-making and
ownership practices across its majority owned portfolio of investments. In cases where we
have limited ability to influence, we encourage companies to consider relevant activities
covered in the Investment monitoring section of this policy.
