Agribel Annual Financial Review | Page 51

AGRIBEL HOLDINGS LTD FINANCIAL REVIEW 2021

24 . FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The group ’ s overall risk management programme focuses on the unpredictability of financial markets , especially commodity derivative markets , and seeks to minimise potential adverse effects thereof on the group ’ s financial performance .

The methods and assumptions used for the year are consistent with the previous year . Major risks have been identified and are managed as set out below .

24.1 Financial risks

24.1.1 Market risks

24.1.1.1 Commodity price risk The value of the grain commodities and the fair value of pre-season forward purchase contracts on the statement of financial position are exposed to commodity price risk . The group is engaged in economic hedging and uses derivative instruments to manage and hedge exposure to commodity price risk . In accordance with the group ’ s risk management policy , only minimal unhedged market positions exist from time to time . The value of available commodities , the net value of futures and option contracts and the value of the net position of the pre-season contracts indicate an effective hedge . The hedging instruments used consist of futures and option contracts . The net revaluation difference of the instruments used for hedging was taken into account against the value of the grain commodities and the fair value of pre-season contracts . The value of commodities on the statement of financial position reflects the market value thereof at year-end and the fair value of the futures contracts , option contracts and preseason contracts is also included in the statement of financial position . Positions that are not hedged on the Safex market leave Senwes with an exposure to price movements . This risk is exacerbated during low market liquidity and high market volatility . Senwes maintains a strict policy and limits are set at low levels with regard to open positions , whether speculative or operational in nature . The status of open positions are monitored daily and reported to appropriate senior management . The net open position as at 30 April 2021 was not material .

The following line items on the statement of financial position are affected by commodity price risk : GROUP

Grain commodities 10 116 62 Other commodities ( raisins , livestock and fuel ) * 10 277 239 Derivative financial instruments ( assets ) 20.1 204 86 Trade and other receivables /( payables ) 11 , 17 ( 1 ) **

* KLK Landbou Limited (" KLK "), a subsidiary of the group , is primarily exposed to price risk of changes in other commodities ( raisins , livestock and fuel ) prices . KLK does not anticipate a sharp drop in trade , livestock and fuel prices in the near future . No cover was taken for the risk . KLK reviews

Notes

its trading , livestock and fuel prices on a regular basis for effective financial risk management . ** Amount is below R0,5 million .

2021 R ' m

2020 R ' m

The potential impact of changes in Safex prices on profit or loss before tax is illustrated below :

GROUP 2021

Increase of R400 in Safex prices ( 2 ) ( 5 ) Increase of R250 in Safex prices ( 1 ) ( 3 ) Increase of R100 in Safex prices ( 1 ) ( 1 ) Decrease of R100 in Safex prices ( 1 ) 3

R ' m

2020 R ' m

24.1.1.2 Trading risk Market risk with regards to trading relates to the potential losses in the trading portfolio due to market fluctuations such as interest rates , spread between current and future prices of commodities , volatility of these markets and changes in market liquidity . Risk limits are set to govern trading within the risk appetite of the group via forward purchase and sales contracts .

Forward purchase contracts represent contracts with producers for the procurement of physical commodities in the future . The forward sales contracts represent contracts with clients for the sale of physical commodities in the future .

Agribel Holdings Limited Reg nr : 1996 / 017629 / 06 AGRIBEL ANNUAL FINANCIAL REVIEW 2021

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