Risk associated with operational activities

As a result of the identification and mapping process within the operational activities, risks were identified and assigned to the following operational areas of the Group’s activities:

  • production planning and production;
  • procurement;
  • logistics.

Risk of microbiological contamination of the production line.

 

This risk may occur in the following situations:

  • irregularities in the hygiene of the production line;
  • microbiological contamination of raw materials;
  • improper disinfection of the production line or incorrect design of the production process or production line.

As a result of this risk occurrence, the production line may be temporarily shut down, contributing to limited production capacity and loss of sales. The sale of microbiologically contaminated products may give rise to loss of reputation and the need to incur the costs of withdrawing defective products from the market.
In order to prevent the risk of microbiological contamination of the production line, Śnieżka systematically examines the microbiological purity of production lines, periodically disinfects them, tests samples of finished products, tests the microbiological purity of raw materials and checks the expiry dates of products and raw materials.

Risk of inefficiency of production processes

 

The risk of inefficiency of production processes may take place as a result of:

  • lack of continuous optimization
  • lack of automation of production processes.

The consequence of inefficiency of production processes may be higher unit production costs, and consequently, lower profitability and possible loss of the market in favour of products offered by competitors.
Śnieżka manages the risk of inefficiency of production processes by steady monitoring the efficiency and dynamics of production, monitoring cost effectiveness and uninterrupted control of production profitability as well as searching for more cost-optimal substitutes for raw materials used to produce products.

Risk of significant fluctuations in raw material prices

 

The risk of significant fluctuations in raw material prices may occur in the event of a serious increase in the prices of key production raw materials for Śnieżka. It may be triggered by the market situation:

  • demand increase;
  • limited supply of raw materials as a result of natural disasters;
  • interruption of the supply chain as a result of epidemiological or political events.

Additionally, due to the prices of key raw materials expressed in foreign currencies (mainly EUR and USD), exchange rate risk has a substantial impact on the level of raw material prices.  The effect of the risk materialization of a significant increase in raw material prices is an increase in production costs, which has a direct impact on Śnieżka’s bottom line.  The Company manages the risk of essential fluctuations in raw material prices by concluding long-term supply agreements that enable price stabilization and concluding agreements with at least two suppliers for each of the key raw materials. Moreover, Śnieżka minimizes the exchange rate risk by purchasing the currencies necessary to acquire raw materials when their quotations are favourable.

Risk of lack of availability of raw materials or packaging and risk of significant delays in the supply of raw materials or packaging

 

The risk of lack of availability of raw materials or packaging and the risk of significant delays in the supply of raw materials or packaging may occur in the aftermath of a reduction in the supply of raw materials or packaging as a result of:

  • natural disasters
  • interruption of the supply chain as a result of epidemiological or political events.

The occurrence of this risk may contribute to delays in the production and delivery of Śnieżka’s products.  In addition, if this risk occurs, Śnieżka will be forced to bear additional costs related to the search for substitutes for raw materials and their purchase at higher prices. Also, a negative impact on the quality of products is possible as a result of the need to use lower quality substitutes for raw materials Śnieżka limits the risk of lack of availability of raw materials or packaging and the risk of significant delays in the supply of raw materials or packaging by geographical diversification of suppliers of key raw materials, concluding contracts with at least two suppliers for each of the key raw materials and packaging suppliers and by identifying and taking advantage of appropriate qualitative substitutes for production.

Risk of lack of available carriers (including the risk of low availability of suppliers rendering partial load transport services at controlled temperatures)

 

Carrier availability limitations may occur as a consequence of:

  • market situation on the market of transport services;
  • weather changes (applies to the lack of transport services at controlled temperatures);
  • the need to transport hazardous materials.

The availability of this category of services is also influenced by political risk (e.g. transport of products to politically unstable countries such as Ukraine or Belarus). The materialization of the risk of unavailability of carriers may result in delays in timely delivery and contractual penalties following these delays. Śnieżka limits the risk of lack of carrier availability by signing long-term contracts with carriers and actively searching for new service providers in this area.