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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