Senwes Annual Financial Statements 2022 | Page 56

SENWES ANNUAL FINANCIAL STATEMENTS 2022
23 OTHER OPERATING INCOME
GROUP
COMPANY
2022 R ' m
* 2021 R ' m
2022 R ' m
* 2021 R ' m
Dividends received
-
-
41
3
Profit on disposal of property , plant and equipment
1
37
-
3
Rental income
32
22
21
18
Insurance fund income
-
-
6
-
Bad debt recoveries
13
2
13
1
Gains on volume instrument
7
3
7
3
Gains on corporate speculation
4
-
4
-
Other income **
71
62
12
11
Total other operating income
128
126
104
39
* Refer to note 34 for details regarding adjusted prior year figures . ** Other income include John Deere bonuses , commission received , insurance claims , tax incentives , sponsorships received , management fees and sundry income .
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 pre-season 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 following line items on the statement of financial position are affected by commodity price risk :
Notes
GROUP 2022 R ' m
2021 R ' m
Grain commodities
10
175
116
Other commodities ( raisins , livestock and fuel ) *
10
412
277
Derivative financial instruments ( assets )
20.1
595
204
Trade and other payables
11 , 17
-
( 1 )
Derivative financial instruments ( liabilities )
20.2
( 59 )
( 58 )
Total
1,123
538
* KLK Landbou Limited (" KLK "), a subsidiary of the group , is primarily exposed to price risk of changes in commodities such as 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 its
trading , livestock and fuel prices on a regular basis for effective financial risk management .
The potential impact of changes in Safex prices on profit or loss before tax is illustrated below : GROUP 2022 R ' m
2021 R ' m
Increase of R400 / t in Safex prices
( 33 )
( 5 )
Increase of R250 / t in Safex prices
( 28 )
( 3 )
Increase of R100 / t in Safex prices
( 23 )
4
Decrease of R100 / t in Safex prices
( 16 )
-
Decrease of R250 / t in Safex prices
( 11 )
1
Decrease of R400 / t in Safex prices
( 6 )
3
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 .
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