Risk management
Risk management policy
In terms of the risk management philosophy statement issued by the Chief Executive Officer and Financial Director and endorsed by the Board of Directors, the Company is committed to managing its risks and opportunities in the interest of all stakeholders. Every employee has a responsibility to act in this manner.
- provide the Board of Directors with assurance that significant business risks are systematically identified, assessed and reduced to acceptable levels and
- make risk identification and risk management an integral part of the daily activities of everyone in the organisation.
Implementation of the risk management policy
Executive management is accountable for the process of risk management and for establishing appropriate risk and control policies. The implementation of the risk management framework is the responsibility of everyone in the Group.
AFGRI’s enterprise-wide risk management process is guided by the following key principles:
- a clear assignment of responsibilities and accountability
- a common enterprise-wide risk management methodology and process
- the identification of uncertain future events that may influence the achievement of business plans and strategic objectives and
- integration of risk management activities within the Group and across its value chain.
Supporting the risk management policy is the enterprise-wide risk management (ERM) methodology. This methodology introduces risk management processes into all critical business systems, allowing the Group to adopt a precautionary approach to business management. When critical decisions are made, managers are required to look beyond the obvious risks and recognise all sources of uncertainty, including issues related to health, safety, environment and community.
ERM requires management to understand the risks associated with activities under their control and manage them accordingly. This acts to stimulate and reinforce accountability. The context of all the risk management activities is always the achievement of the business plan and strategic objectives.
All the Group’s activities involve analysis, evaluation, acceptance and management of some degree of risk or combination of risks:
Each business unit and subsidiary has undergone an objective process of business risk assessment during the period under review, facilitated by Group Risk Management and external consultants. These risk assessments highlighted areas where further control action is required and which is now being undertaken.
The management of operational and insurable risks covers many diverse dimensions such as security, health and safety, risk control organisation, emergency planning, vehicle fleet, fire and loss controls. Comprehensive programmes are in place to identify and evaluate operational risks, implement process improvements and monitor the status of key risks. The Board of Directors has appointed internal and external consultants to audit these programmes.
The Group has comprehensive risk and loss control procedures in place, which form an integral part of a sophisticated self-insurance programme. The layered structure of the programme allows the Group to cost effectively protect itself from major losses through local insurance.
The risk management framework has identified material financial and non-financial risks. The most significant financial risks include:- market risk (which includes foreign exchange, interest rate, equity and commodity price risk)
- credit risk
- liquidity risk and
- capital risk.
More details on the management of these financial risks are given in the accounting policies under “Financial risk management”. Refer to note 25.
Other significant non-financial risks faced by the Group include:
Operational risk which relates to disruptions and losses emanating from a failure in systems, people and processes
A suite of initiatives is underway to mitigate and improve on the management of these risks throughout the Group on an ongoing basis.
AFGRI has been proactively managing its ability to access funding through the:
- establishment of an Asset and Liability Committee (refer Accounting Policy note note 25.1 (a))
- increasing the tenure of facilities
- securing of committed short-term funding and working capital requirements
- diversification of the funding base and funding instruments both locally and internationally
- matching of sufficient debtor-finance term facilities to the existing debtors book and its anticipated growth and
- introduction of contingent liquidity facilities.
Regulatory environment
Many of AFGRI’s activities are governed by regulations. The Group has continued with anti-money laundering, National Credit Act (NCA) policies and procedures, and Competition Act training for affected employees. Ongoing initiatives will continue for changes arising from the Consumer Protection and Companies Acts and the pending King III Code on Corporate Governance.
Weather
AFGRI is exposed to material losses due to adverse weather conditions. It is not possible to control weather, but AFGRI manages the risk by increasing its client base to diverse geographic locations throughout Africa and product innovation to meet varying climatic conditions.
Reputation risk
Reputation risk is the risk that negative publicity regarding AFGRI’s business practices will lead to a loss of revenue or litigation. This risk can arise from product non-performance, poor press communication, inadequate reporting, poor internal communication and incorrect advice to farmers. Reputation, particularly the trust afforded by customers and counterparties, can be irrevocably tarnished due to perceived or real breaches in the ability to conduct business securely and responsibly. AFGRI manages this through regular analyst, media and general communication management according to a media policy, an anonymous fraud hotline, support functions, regular management meetings and product testing.
Changes in the agricultural environment
Consistent with developments in the socio-political environment in South Africa the agricultural sector is experiencing change and this impacts AFGRI’s customer base. AFGRI is meeting the opportunities that arise and is cognisant of the risks that need to be mitigated by working very closely with its partner, Agri Sizwe, and leveraging on their social capital. In addition, AFGRI engages with government at various forums directly and indirectly through industry business associations. AFGRI’s strategy and business plans are aligned with these socio-economic changes.
Reporting of the effectiveness of risk management
The Group’s risk management policies are designed to identify and analyse risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date administrative and information systems. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Individual responsibility and accountability, instilled through training, are designed to deliver a disciplined, conservative and constructive culture of risk management and control.
All business units and subsidiaries report on the effectiveness of their risk management processes, in a generic dashboard format, to Group Risk Management, the Divisional ERM Committees and the Group Audit and Risk Management Committee that in turn reports to the Board of Directors.