Doing business inherently involves taking risks. By taking balanced risks, we strive to continuously build on being a financially sound and sustainable company. Risk management is therefore an important element of our corporate governance and strategy development. Through our risk management initiatives, we seek to provide reasonable assurances that our business objectives can be achieved and our obligations to customers, shareholders, employees and society can be met.
Below, we have set out the most significant risk factors that we have managed this year. A graph is used to indicate the probability of a risk occurring and the possible impact of the risk on our strategic ambitions. We also have mitigating measures for the quadrants ‘high impact’ and ‘high opportunity’. The overview is not intended to be an exhaustive list.
The following specific risks arose over the last year:
1 - Economic risk
From an economic point of view, the global situation is similar to last year, which has made a neutral contribution to results.
2 - Political unrest
The level of political unrest has remained largely the same but specific political decisions have had a negative impact on sales. In the past year, we have had no significant supply delays as a result of political risk. So far, in its export boycott, the European Union has made an exception for our product. Our international distribution has mitigated these risks.
3 - Changes in exchange rate
Over the last year exchange rate changes occurred, but the small scope of our foreign asset position meant that these had a minimal impact on the company results.
4 - Talent management
The growth which is forecast makes the necessity of attracting talent a matter for attention. Work on the image and communications of HZPC Holding is taking place to assist in this. Despite the squeeze on labour market conditions, we have been reasonably successful in attracting the right talent.
5 - Crop protection agents
As certain crop protection products can no longer be used, the challenge for growers increases in relation to the cultivation and storage of seed potatoes. This risk is being limited by alternative measures and guidance.
6 - Provision of information
Provision of information and protection: growth and further digitisation have increased the dependence on IT systems. Steps are being taken towards standardised, harmonised processes and integrated systems with an adequate infrastructure and back-up facilities. In addition, we are working on the replacement of the system and better security of the infrastructure. Risks that are always present are not specific to this reporting year. However, the implementation of a new ERP system will correspond to additional risks in the coming year. Rigid project management and external quality control will help to keep the business risks to an absolute minimum.
7 - Seed potato diseases
The seed potato market is a global market. Our sales can be influenced by phytosanitary impediments and political factors. The risk of disease plays an important part in breeding seed potatoes. Quarantine diseases in particular have a large influence on the availability of seed potatoes. The discovery of a quarantine disease at our breeding station or in our production area could seriously delay the development of new varieties and the sale of varieties that have already been produced.
8 - International commercial operations
Our operating profit is subject to credit risks. The financial position of the various buyers in politically unstable areas has definitely not become any less difficult or any easier to assess. For the coming period, a credit risk will continue to apply. However, this is no different than in other years. This remains a high risk with a potentially high impact. We are noticing, particularly in the overseas markets, that it is taking longer to be paid. Where possible we have taken the following mitigating measures to counter this.
- We regularly use safeguards such as advance payments, LCs and bank guarantees.
- Credit limits are actively monitored throughout the season.
- New deliveries for the new season are rarely permitted until debts from the previous season have been paid.
9 - Complying with laws and regulations
HZPC Holding and her subsidiaries may be held responsible for any liabilities arising out of non-compliance with laws and regulations. As HZPC Holding, we do business in more and more countries that have juridical compliance processes with which we have to comply. The UK Bribery Act is an example of one such law with which HZPC Holding and also other international companies have to comply. We are fully aware that the risk of non-compliance with laws and regulations can damage our reputation and lead to serious legal consequences. This year, the introduction of the General Data Protection Regulation (GDPR) has been given the necessary attention.
10 - Substitution risk
There is a chance that substitute products may be developed, such as competing varieties or the production of earlier and/or better potatoes from seed, but it does not represent a high risk in the short term.