FINANCIAL REVIEW
RISK TREND
CREDIT , LIQUIDITY AND MARKET RISK
Risk Events
� Extremely late harvest resulting in record arrears . However , the risk event was managed at an exceptionally high level , limiting any possible negative impact .
� Land Bank downgrade and subsequent repricing of the agricultural debt industry .
Description The profile of the credit book with regards to concentration and geographical risk remains a risk factor . The improved outlook on farmer profitability would further mitigate credit and market risk . The Senwes Group is also exposed to medium-term liquidity risk and volatile interest rate changes . Market risk includes the repricing of the South African economy with regards to credit ratings .
Mitigation and Control The potential credit concentration risk relates mainly to debtors . Debtors consist of many clients , spread over different geographic areas . Credit is extended in accordance with the credit policy of the
Opportunities
� Diversification and / or expansion into new , lower risk and counter-cyclical markets or commodities .
� Formulation and roll-out of new and adapted solutions which aim to mitigate credit , liquidity and market risk .
Strategic focus areas triggered
� Diversification , horizontal integration and consolidation .
� Reorganisation of business models .
� Externalisation .
For more info on the group strategy see p . 44
group . Prudent credit evaluation processes are strictly adhered to . The group is also naturally hedged against fluctuating interest rates to a large extent since interest-bearing debt is mainly utilised for interest-earning assets , both at floating interest rates . Contracts , however , are all linked to the prime rate .
RISK TREND
COMMODITY PRICE RISK
Risk Events
� Record decline in Brent crude oil price ( opportunity for Senwes ).
� Continued trade war between USA and China impacting local commodity prices .
� Volatile end of financial year soft commodity price movements due to lack of higher grade white maize and declining closing stocks .
� Market backwardation during March and April .
Description Volatile commodity markets such as grain , oilseed , fertiliser , steel and oil have an impact on input costs and the cost of capital goods for producers , creating trading risks .
Mitigation and Control The group uses derivative instruments to manage and hedge exposure to commodity price risk . In accordance with the group ’ s risk
Opportunities
� Continuous development and optimisation of the group ’ s hedging instruments and price management strategies .
� Development and roll-out of tailor-made solutions which aim to manage / mitigate commodity price risk for producers and optimise their cash flow positions and profit - ability .
Strategic focus areas triggered
� Reorganisation of business models . For more info on the group strategy see p . 44
management policy , only minimal unhedged market positions exist from time to time . The hedging instruments used consist of soft commodity futures contracts as well as option contracts .
SENWES INTEGRATED REPORT 2020
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