ThaiBev Sustainability 2020

SUSTAINABILITY

SUSTAINABILITY REPORT 2020

ThaiBev Sustainability Approach

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GRI 102-11, GRI 102-15, GRI 102-17, GRI 103-1, GRI 103-2, GRI 103-3

RISK MANAGEMENT

ThaiBev manages risks in operations and management system in accordance with our sustainability strategy by monitoring, evaluating, and managing uncertainties that may represent significant corporate risks or opportunities for sustainable growth. Risk management enables ThaiBev to prevent and mitigate impacts, respond to challenges, and take full advantage of the arising opportunities to achieve goal of becoming stable and sustainable total beverage leader in ASEAN.

ThaiBev’s Risk Management Strategy in a Crisis Situation

The spread of COVID-19 pandemic has severely impacted human livelihoods and business operations causing global economic disruption. It has affected supply chains resulting in business closures, job retrenchment, and decline in consumption of goods. Therefore, successful management of risks from COVID-19 pandemic is vital to business survival. ThaiBev has implemented measures to mitigate risks to employees, relevant parties, or business operations and continues to create value for society. ThaiBev implemented the following risk management measures during the COVID-19 crisis:

Conducted business operations in alignment with governmental policies and measures on COVID-19 by focusing on production and logistics of finished products as well as providing services that are essential to society.
Implemented health prevention, safety and wellbeing measures for employees, business partners, and members of Thailand Supply Chain Network (TSCN).
Provided assistance to control and prevent the spread of COVID-19 through own initiatives and collaboration with external organizations and business alliances.
Contributed to economic and social recovery particularly the economy at grassroots and community levels.

By implementing the above measures, ThaiBev was able to manage the impact of COVID-19 pandemic on business and stakeholders promptly allowing ThaiBev to continue business operations without interruption during COVID-19 crisis.

For the risk management under uncertainties or in times of crisis to be effective and efficient, a clear enterprise risk management framework and systematic risk management process are the key element and foundation. ThaiBev’s enterprise risk management framework based on the COSO: Enterprise Risk Management Framework has been implemented with the following key components:

covering Board of Directors, Sustainability and Risk Management Committee, Audit Committee, Executive Committee, Corporate Sustainability Development Committee, Specific Committees appointed by the Management Committee, Sustainability Development Working Team, Corporate Risk Management Working Team, and the risk coordinators of product groups or business units.

all functions align on such commitment for food and beverage business by analysing and monitoring risk factors and significant future trends that may affect business operations or corporate strategies.

from corporate to operating levels by collecting information, identifying and assessing key risks, and establishing strategies and systematic approaches for managing risks, including creating new business opportunities in line with the strategies and the sustainability materiality of ThaiBev.

at all levels, ranging from departments, subsidiary entities, business units, product groups to the corporate level, in a clear and continuous manner. For example, the progress of sustainability projects or risk management activities, potential risks that may impact ThaiBev, risk indicators, etc.

through training, processes, and activities for executives and employees at all levels throughout the organization to create awareness on the importance of the sustainability and risk management to encourage engagement in the sustainable development and risk management of the organization.

Thaibev group's sustainability development and risk management structure

Holistic Risk Management Process

ThaiBev implements holistic risk management which merges top-down and bottom-up involvements in the process of managing risks ranging from corporate risks, product group/business unit risks to operational level risks. The risk management process comprises five steps, which are

Alignment of the corporate objectives and the product group's or business unit's objectives,
Business risk and opportunity identification,
Risk assessment,
Countermeasure and indicator determination, and
Reporting and evaluation

In response to ongoing business challenges, ThaiBev analyzes and assesses internal and external factors, significant and relevant trends (such as economic, environmental, social, technological, political, industrial and competitive trends), and expectations of all stakeholders along with our goals and business strategies to identify the present and the future corporate risks, including emerging risks. In addition, we have linked the identified corporate risks with the ThaiBev sustainability materiality under 3 dimensions (namely environmental, social, and economic), as summarized below.

Environmental

ThaiBev Sustainability Materiality

1. Water stewardship
2. Waste, packaging, and circular economy
3. Climate strategy
4. Energy management

Corporate Risks

1. Water-related risk
2. Waste and pollution risk
3. Climate change risk

Social

ThaiBev Sustainability Materiality

5. Employee wellbeing
6. Corporate consumer accountability
7. Human rights
8. Talent attraction and retention
9. Human capital development
10. Community development and partnerships

Corporate Risks

4. Stakeholders health and safety risk
5. Human capital development risk
6. Corporate reputation and image risk

Economic

ThaiBev Sustainability Materiality

11. Consumer health and safety
12. Product health and nutrition
13. Sustainable supply chain
14. Corporate governance and business ethics
15. Innovation management
16. Data security and privacy
17. Business partners capability development

Corporate Risks

7. Strategic risk involving new business investment
8. Business circumstances and competition risk
9. Supply chain risk
10. Financial risk
11. Compliance and regulatory risk
12. Cyber threats and data security risk
13. Emerging risks
- 13.1.Risks from changes in consumer behavior
- 13.2.Risks from trends in environmental conservation, circular economy, and sustainability
- 13.3.Risks from disruptive digital technology and innovations
- 13.4.Geopolitical risk

(Please see the Annual Report 2020, page 136-147 for details of each corporate risk and mitigating actions.)

Commitments and Achievements

To develop appropriate risk management measures, ThaiBev reviewed sustainability material topics in 3 dimensions (environment, society, and economy) and existing corporate sustainability risks. The post-review sustainability risks are categorized into 3 groups.

Water-related risks
Climate change risks

Supply chain risks as business operations were halted by COVID-19 pandemic causing increases in risk with higher operating costs and lack of raw materials or delayed delivery causing supply chain disruptions during lockdown
Employees’ occupational health and safety risks due to COVID-19 infection
Product quality and safety risks due to COVID-19 contamination
Regulatory compliance risks as government issued special orders to control COVID-19 pandemic
Financial risks, particularly financial liquidity and interest rate fluctuation

All risks with increased risk level could impact production, delivery of products and services to customers, which could affect income or sales as well as profit and performance.

Risks of restaurants located in shopping malls
Risks of dine-in restaurants, especially those in fine-dining segment
Risks of selling alcoholic beverage through restaurant channel
Cyber risks
Information security risks

These new risks arise from “new normal” lifestyles and business contexts related to COVID-19, such as government lockdown measures to reduce the spread of COVID-19 resulting in the shutdown of dine-in restaurants, and physical distancing. All of these impact the demand for products and services and led to drastic changes in consumer behavior and business models.

Opportunities from COVID-19 Crisis

The COVID-19 pandemic has caused many businesses to lose income and business shut down, but it has also catalyzed many organizations, including ThaiBev, to transform business strategies and invest in digital technology and innovations for business activities along the value chain from sourcing, production, distribution, marketing and sales to post-consumption packaging management, to change business model to full-scale digital business. This creates new business opportunities by preparing for future changes and offering customers new experiences that are better than the existing products and services.

In the early and widespread stages, there was significant demand for hygiene and health-related products. The demand for delivery of products and e-commerce increased more than usual.
In the later stage when the outbreak subsided and controlled, people started returning to their normal lifestyles resulting in increased transportation, whether for leisure or business, and demand for products and services gradually returned to a normal level.

ThaiBev adjusted its business and service models through the transition of COVID-19 pandemic stages. For instance,

In the early stage, Thaibev focused on the production of drinking water to meet national demand and launched marketing promotions and advertisements on social media.
Thaibev's food business implemented online ordering systems through the BevFood application, partnered with food aggregators to extend ordering and delivery services to more consumers.

Even when the COVID-19 pandemic is fully under control or ends, ThaiBev will remain committed to developing new products, especially healthy beverages and food products, and to leverage digital technology in its business operations, including innovations in order to create opportunities and sustainable business growth for the future.

Insight

Prasit Kovilaikool

Independent Director, Chairman of the Sustainability and Risk Management Committee and the Audit Committee
Thai Beverage Public Company Limited

COVID-19 Crisis and Risk Management at ThaiBev

The COVID-19 pandemic is a significant risk factor that brought about various risks that could impact ThaiBev’s business operations, such as risks associated with employee health, supply chain management, financial liquidity, and corporate image and reputation. If there is news regarding ThaiBev employee as being infected with COVID-19, or an infected visitor/customer entering ThaiBev production facilities, office buildings, sales and service premises, or any of them become infected after coming to ThaiBev’s facilities, it could lead to the closure of those areas. This could also have a long-term effect on operations due to delays or inability to follow business plans. Given that COVID-19 pandemic continues to be an ongoing crisis with no end in sight, operating business cannot follow business-as-usual strategies or approaches. ThaiBev must implement contingency plans to manage the rapidly changing situation in order to prevent and mitigate impacts as much as possible.

In March 2020, ThaiBev’s management established the following:

COVID-19 ThaiBev Situation Room
to monitor business continuity in sourcing, production, transportation, and distribution by creating business and employee database, analyzing information and news and internal information to assess, decide and plan responses to the situations in the short and long terms.
COVID-19 Relief Center
to collect information communicate necessary information, and provide health and safety assistance to employees, especially personnel in Thailand (where there are more than 49,000* persons), including measures in the workplace and for operations under the COVID-19, the provision of COVID-19 prevention and risk-avoidance gear to employees and their families, the purchase of accident and COVID-19 insurance, and the provision of COVID-19 screening tests as part of its employees’ welfare at the cost of approximately 39.2 million baht.

* information as of March 2020

Emerging Risk Monitoring

Due to fast-changing economic, social, and environmental conditions, ThaiBev is well aware of significant emerging risks that will have medium- or long-term impacts on the Company’s business, and require the Company to adapt new strategy and/or business model for business resilience and sustainability. In this regard, ThaiBev regularly analyzes the potential external risks that are beyond the Company’s influence or control, and have the potential to significantly affect ThaiBev’s operations, before developing mitigation measures and closely monitoring those emerging risks to reasonably ensure the achievement of ThaiBev’s business goals and objectives. Massive and rapid spread of Covid-19 pandemic, which began around the end of 2019 and has been continuing until present with no clear end in sight, has resulted in loss of lives, problems on people's health, social aspects and way of life, and economic disruption. The effects of Covid-19, along with some aspects of the national policy response and the imposition of international travel bans, have adverse impacts on economies and societies, widen existing disparities within communities and between nations, and disproportionately harm certain business and industry sectors and societal groups. The pandemic crisis also impacts consumer behaviour and trends in the short and medium terms (in the next 3-5 years).

Business Impacts

ThaiBev businesses in Thailand and overseas have been affected by Covid-19. Various levels of spread control measures have been imposed, ranging from the ban of alcohol sales and dine-in restaurants, closure of entertainment venues and shopping malls, international and inter-province travel restriction, to national lockdown and curfew. ThaiBev’s operations under the pre-established strategies have been affected, especially on-premise channel, as well as minor disruption of our suppliers' operations. Moreover, the Covid-19 crisis has accelerated consumers' shift towards online and digital channels. During the first year of Covid-19 crisis ThaiBev’s total sales dropped by 10%. Going forward, we foresee that the development of new Covid variants with resistance to vaccination, as well as future highly infectious diseases, will lead to business continuity risks as well as fluctuation in government pandemic control policies affecting our operations in the coming years.

Mitigation measures

To mitigate business effects of the COVID-19 crisis, ThaiBev has transformed business strategies and invested in digital technology and innovations for business activities along its value chain. ThaiBev co-founded Thailand Supply Chain Network (TSCN) in order to manage business continuity risk and ensure Thai business sector’s resilience. Our beverage business has developed new alcoholic products for at-home consumption, implemented online marketing strategies, and launched a vitamin drink to help build immunity. Our food business has enhanced online ordering and delivery system, including menu adjustments and contactless payment, to allow consumers to enjoy our products in full safety. Cloud kitchen system was introduced to optimize our capacity and increase productivity of our restaurants. To prepare for future pandemic/infectious diseases, we have also invested in COVID testing facility and N-95 mask production for our staff, business partners and social assistance.

The 2017 Global Climate Risk Index ranked Thailand among the world’s top 10 countries most affected by climate change which has major impact on water resources. Thai government joins the global effort on climate change through its national climate change policy, strategies and environment-related regulatory changes. This includes an enforcement of Water Resources Act B.E. 2561 (2018) for national water resources management in respect of the allocation, use, development, management, maintenance, rehabilitation and conservation. The Act classifies public water resource users into 3 groups. The industry group or the large-quantity water user requires a water use license with water management plan, compliance with water use conditions to prevent damage to public water resources or to deal with water crisis, and payment of water charges based on the quantity of surface water used. The said requirements are likely to be applied in 2021 onwards which will affect our operating costs and public water withdrawal in 3-5 years.

Business Impacts

As a leading producer of beverages and foods, water resource is one of the key factors of production including related processes for ThaiBev. Currently, our total surface water consumption at the production sites in Thailand is approximately 15-20 million m3 and is likely to increase annually according to the production and sales volume. Hence, the surface water tariff to be applied will significantly increase our production cost. Based on our scenario analysis, the annual production cost would increase by approximately Baht 70-140 million, excluding investments and operational costs associated with the water resource security. Increasingly stressed water resources also represent a major threat to the integrity of our supply chains and business continuity. Additionally, if the Company violates or fails to comply with the Act, the water use license might be revoked and affect our production and reputation.

Mitigation measures

Following the Royal Decree on River Basins, B.E.2564 (2021), that stipulates 22 watersheds in Thailand, ThaiBev has mapped 34 production sites in Thailand located in 12 river basins to join up with other water users in the same basin to register as a water-user body to maintain common interests in area water management in line with the rules and regulations, including the directions and policies determined by the drainage basin committee and the National Water Resources Commission. At operational level, ThaiBev has conducted water sustainability assessment for both surface water and groundwater at production sites by using advanced technology (i.e., satellite imagery) to identify and evaluate level of water-related risks and set a water management guideline at each location. Water saving and water recycling become one of the criteria for our improvements and investments in machinery, i.e., glass bottle washers and rinsers, condensate recovery of boiler and closed-loop cooling water.

Food and beverage industry is prone to be affected by the development and employment of technologies and innovations so as to increase production efficiency, decrease the dependence on human labor, save costs for the business in the long run, and respond to the ever-changing demand of consumers. They range from the use of blockchain technology in the food supply chain for traceability of food products and quality of raw materials, building food safety, and reducing food waste. Artificial Intelligence (AI) are used to monitor food safety through a sensor system, sort raw materials before entering the production and processing by means of machine learning, and control production standards, hygiene and cleanliness within the factory. There is the use of technology in restaurant management (Digitization of Restaurants) by developing robots to work in various fields, such as in making beverages, answering customers’ questions, making recommendations and taking orders from customers, including online food ordering and delivery to facilitate consumers, etc. In addition, innovative food and beverage products, i.e., plant-based foods and milk, and synthetic foods with nutrients, good look and taste, have been increasingly introduced to the market.

Business Impacts

Technology and innovation disruption is considered as a risk that can affect the business of ThaiBev Group in terms of products and services, business model, and route-to-market, more intense competition from industry peers who adjust their business model to respond to the change and gain competitive advantage, or competitors from peripheral industries who can easily jump into the competition by employing digital technology and developing innovations. If the Company cannot adapt itself to keep pace with the technological change in time, or cannot develop and launch innovative products to the market to respond to the changing consumer demands and behaviors, it will affect our revenue growth, market share, value and brand royalty.

Mitigation measures

ThaiBev has devised a strategic plan for developing IT system and digital technology under the collaboration with global-leading universities in order to enhance the efficiency and effectiveness of ThaiBev’s value chain to prepare for the planned business expansion. We also invent innovative production focusing on employing technology and engineering to increase production capacity and competitiveness, and apply AI to help predict the future trends based on the historical big data, so the personnel in each functional unit can accurately see the goal altogether based on the actual historical data in tandem with monitoring and analyzing the digital technology trend continuously. ThaiBev R&D center is responsible for inventing and developing products and new types of services to accommodate the needs and lifestyles of consumers in all ages and in all periods.

ThaiBev 2020 Sustainability

ThaiBev
2020 Sustainability