The Board has overall responsibility for risk management including determining the nature and extent of significant risks that it is willing to accept in pursuit of its strategic and operational objectives.
To address this, the Board has established a risk management system that provides for the continuous identification, assessment, implementation of mitigating actions and controls, and the monitoring and reporting of significant risks within Bord na Móna.
The Risk and Audit Committee (“RAC”) is responsible, under delegated authority, for assisting the Board in fulfilling its obligations with regard to assessing, reviewing and monitoring the risks inherent in the business and the control processes for managing such risks. The RAC is supported by an appointed Chief Risk Officer (“CRO”).
The CRO is responsible for overseeing the day to day risk management activities and has responsibility for ensuring that an effective risk management system, proportionate to the nature, scale and complexity of Bord na Móna is developed and maintained.
Bord na Móna has an established enterprise wide risk management system that ensures that risks are consistently identified, assessed,
recorded and reported across all business units and support functions. The risk management system provides appropriate governance structures to support risk management practices, formal assignment of risk responsibilities throughout Bord na Móna and the procedures to be used, including relevant mitigation actions and controls.
The risk management system includes the following key elements:
• A strategy that includes objectives and principles;
• Assignment of responsibilities;
• A framework and reporting cycle to identify, assess, manage, monitor and report on the risks that Bord na Móna is or may be exposed to;
• A combination of ‘top down’ and ‘bottom up’ risk assessment and management process.
• As part of the “bottom up” risk assessment, regular workshops are held each year with business units and central support functions. Individual risks are assessed, scored and mitigating controls, already in place, are identified.
• The top risks to the Group are presented to the Senior Management team who review, amend and rank them to identify the top Group residual risks. This review is an important part of the annual overall “top down” risk assessment carried out in the Group.
• A risk monitoring plan that outlines the review, challenge and oversight activities of the CRO;
• Reporting procedures which ensure that risk information is actively monitored, managed and appropriately communicated at all levels within Bord na Móna. On a quarterly basis each business and central support unit updates their risk assessments as part of the risk review and reporting process. These are then reviewed with the RAC on a semiannual basis;
• Embedding a strong risk management culture across all levels of the Group; and,
• Developing risk appetite statements in conjunction with the strategic planning process.
The principal risks which have the potential, in the short to medium term, to have a significant impact upon the Group’s strategic objectives are set out below. The Group has developed mitigation measures, to deal with these risks where appropriate.
The list of risks provided below is not exhaustive and will change over time. This represents the Board’s view of the principal risks at the date of this report.
|Category||Risk and Impact||Mitigating Actions|
|Compliance||Failure to protect the Group’s Corporate Brand and reputation resulting in an inability to retain and grow revenue, profitability and loss of public support for Group activities.||On a continuing basis the Group invests in maintaining its Corporate Brand and reputation. It monitors its brand position through reputational tracking. The Group consistently engages with the local communities in its areas of operation.
|Financial||Failure to provide adequate banking facilities to meet business needs and to manage interest rate and foreign exchange exposure resulting in higher funding costs and an inability to finance the implementation of the strategic plan or maintain liquidity to meet future commitments or provide funds to deal with unplanned events.||The Board has approved a Treasury policy which defines how Treasury activities are managed. The Group takes a risk averse position when deciding foreign exchange and interest rate policy. Certain natural economic hedges exist within the Group and the policy is to match and hedge foreign currencies, on a net basis, across the businesses. To ensure stability of cash outflows and manage interest rate risk, the policy is to maintain at least 50% of debt at fixed rate. At March 2016, the Group had fixed 100% (2015: 100%) of its private placement debt through a series of interest rate swaps. The Group funds its operations by borrowing within a spread of maturity periods. Financial instruments are used to manage interest rates, foreign currency exposure and other financial risks. The Group does not engage in speculative activity.|
|Operational||Low prices in the single electricity market may impact on electricity generating activities and Group operating profit performance.||The Group has entered 15 year off-take agreements in respect of a number of its generating assets which guarantee the selling price of electricity generated by these assets. Appropriate hedging and contractual arrangements are in place to limit exposure to volatility in respect of carbon and biomass pricing. The Group has developed a diversified portfolio of generating assets to mitigate the risk.|
|Operational||Impact of weather on the operating performance of the Group. The Fuels, Horticulture, Peat and Powergen businesses are significantly weather dependent.||Development of a balanced portfolio of businesses gives the Group a “hedge” against adverse weather impacts on a particular business. The Group has also developed contingency plans to protect profitability. A flexible operating model with seasonal employees, particularly in the Peat business, facilitates adjustment of the cost base, as required.|
|Operational||Failure to obtain planning approval for key projects resulting in non-delivery of the strategic plan.||The Group has an experienced management team and specialists in the area of planning, who are constantly focused on improving our approach to planning applications as regulatory requirements evolve.|
|Operational||Failure to comply with Health and Safety legislation and policies resulting in the injury/death of an employee, damage to property, financial sanction, financial loss or reputational damage.|
This could be caused by:
• A lack of enforcement;
• Employees not following prescribed procedures;
• Insufficient training.
|Detailed Health and Safety procedures are in place across the Group.
The Health and Safety department carry out staff training and health
and safety audits, augmented with independent external audits.
Insurance cover is maintained for all significant insurable risks. The
Group’s operations are subject to a range of environmental and legal
inspections and robust monitoring procedures have been designed to
prevent material breach of statutory or other regulatory obligations.
|Operational||Exposure to commodity price variations for key purchases (in particular biomass), the limited availability of certain commodities and limited ability to recover price increases in the marketplace resulting in reduced profitability.||The Group actively hedges commodity exposures where it is both possible and economic. The Group accepts, in certain instances, the inherent exposures associated with dealing in commodities. In addition, Group Procurement actively develops new supply chain sources.|
|Regulatory||Regulatory changes which adversely affect the Group, resulting in enforcement actions, legal liabilities, reputational damage, increased compliance costs, reduced profitability and the loss of key stakeholder support.||The Board ensures that plans to deal with known and emerging regulatory risks facing the businesses are developed and implemented. Where mitigation is not possible, the Board may decide to accept the regulatory risk.|
|Strategic||Information Technology systems and infrastructure which are not adequate to support the strategic growth plans for the company and do not provide sufficient automated controls resulting in an excessive cost base and insufficient information to make timely business decisions.||The Group has made significant investment in an automated Enterprise Resource Planning system which is currently being implemented across the Group. An appropriate governance structure has been put in place and the Board is provided with regular updates on the progress of the project.|
|Strategic||Failure to successfully implement transformation projects across the Group resulting in an excessively high cost base leading to our businesses not being competitive.||Robust governance structures have been implemented in respect of key business transformation projects with clear documented responsibilities, timelines and deliverables. Engagement with employees and, where appropriate, their representatives, has taken place and agreement has been achieved on critical cost reduction and change management initiatives.|
|Strategic||Failure to retain, attract and develop the skills, talent and resources of our people resulting in the non-delivery of business strategy and plans.||The Group maintains a strong focus on this area and has a management development programme in place and is developing structured succession planning programmes. A graduate recruitment programme is also in place.|