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Risk Management

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. Mitigating controls are identified and each risk is scored before and after these controls.

– The top risks to the Group are presented to the Executive Leadership 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 semi-annual basis.
  • Embedding a strong risk management culture across all levels of the Group.
  • Developing risk appetite statements in conjunction with the strategic planning process and then monitoring and reporting on these statements.

Principal Risks

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.

CategoryRisk and ImpactMitigating Actions
Compliance
(Brand)
The risk of failing to protect the company’s corporate brand and reputation leading to damage to the company’s reputation with our customers, shareholders, investors, suppliers resulting in an inability to retain and grow revenue, profitability and a loss of public support for some of the company’s’ activities.
On an annual basis the Group invests in maintaining its business and corporate brand and reputation. It monitors its brand position through reputational tracking agencies. The Group consistently supports local community events in its heartland and engages openly with the communities with which it interacts.
Financial
(Banking Facilities)
The risk of the failure to provide adequate banking facilities to meet refinancing and business needs and the failure to manage interest rate and foreign exchange exposure. It is vital that sufficient funding is provided at an appropriate cost to finance the strategic plan, maintain liquidity to meet future commitments and to provide contingency against unplanned events.Group Treasury is responsible for the day to day treasury activities across the Group including the placing of specific derivatives. The Board has approved a Treasury policy which defines how Treasury activities are managed across the Group. 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 Group policy is to match and hedge the currencies across the businesses. In order to ensure stability of cash outflows and hence manage interest rate risk, the Group has a policy of maintaining at least 50 per cent of its debt at fixed rate. At FY18 year end the Group had €150 million of Revolving Credit facilities in place, none of which was drawn. In the past year Group Treasury has been involved in putting non-recourse project finance in place for wind farms which will become an important source of funds for the Group in the future. Financial instruments are used to manage interest rate and financial risk. The Group does not engage in speculative activity and the treasury operating policy is risk averse.
Operational
(Electricity Prices)
The risk of low power prices in the single electricity market and the adverse impact that these prices can have on the Group’s operating results.The Group operates a number of different electricity generating assets which utilise different fuels including peat, gas, biomass and wind. The Group has entered 15 year supply agreements for a number of these plants which guarantee the price of power generated for those assets. Also, the Group, when power prices are high and to protect budget positions, sells power forward with a number of different counterparties. With other assets appropriate hedging arrangements are put in place around carbon and biomass pricing where possible. The Group has consistently tried to develop a diversified portfolio of generating assets in order to mitigate the risk associated with any one individual fuel.
Operational
(Weather)
The overall risk of the inherent uncertainty of various weather patterns on the operating and financial performance of the
Group. In the Fuels business the impact of mild weather on sales volumes during the winter, in the Horticulture business
the impact of wet springs on sales volumes, in the Powergen business the financial impact of low wind yields on the wind
farms and the impact of wet summers affecting the level of peat harvested. The uncertainty of weather conditions presents
a risk to profits generated by the Group.
Developing a balanced portfolio of businesses has given the Group a “hedge” against any one adverse weather condition in a particular business. The Group has also developed contingency plans to protect profitability across the Group if a particularly adverse weather event occurs. It has worked with its employees and trade unions to develop a more flexible workforce. The Group plans to increase its seasonal workforce in order to increase operational flexibility.
Operational
(Planning permission)
The risk of the Group not obtaining planning permission for a number of key infrastructural projects which are included in the strategic plan. Specifically, the risk of an extension of the existing planning permission not being obtained for ESB’s Lough Ree and West Offaly power plants, which expires in 2020. Over the past number of years it has become increasingly difficult to obtain planning permission for any infrastructural developments in Ireland.The Group has an experienced management team that has a proven capability in planning, executing and delivering large infrastructure projects and has demonstrated the capability of doing so. A proven process is in place to ensure that all the necessary documentation and information is submitted to the relevant authorities with each planning application. In addition, the Group engages in extensive community consultation processes. Management is providing information and support to assist the ESB with preparation of the planning applications.
Operational
(Health and Safety)
The risk of the failure to comply with Health & Safety legislation and policies due to a lack of enforcement across the Group, management and employees not following the correct procedures and lack of training - all leading to the injury/death of an employee or damage to property resulting in financial sanction, financial loss and reputational damage.
This could be caused by:
• A lack of enforcement;
• Employees not following prescribed procedures;
• Insufficient training.
Detailed Health & Safety procedures are in place across the Group and these systems are operated based on the nature and the scale of the risks in each business. The Health & Safety department carries out training of all staff and this is also augmented with external audits carried out by third parties. Insurance cover is maintained at Group level for all significant insurable risks and our insurers conduct extensive audits. The Group’s operations are subject to an increasingly stringent range of regulations and inspections and robust monitoring procedures have been designed to prevent a material breach of statutory or other regulatory obligations.
Operational
(Cyber Security)
The risk that the Bord na Móna information technology and/or banking systems are compromised due to being penetrated,
hacked or attacked by external or internal parties which results in financial loss and reputational damage. An increase in cyber security risk globally is now recognised as one of the fastest growing risks for organisations internationally.
The Group has appointed a systems security officer whose role is the protection of the Group’s systems, through the development and implementation of appropriate control protocols. It has also spent and has committed to spend considerable funds in enhancing the security around its IT systems with additional firewalls, virus protections etc.
Operational
(Commodity Prices)
The Group is exposed to commodity price risks for some of its key purchases (in particular biomass) and also the risk of the unavailability of these commodities. Due to competitive pressures the Group’s ability to pass on price increases may be limited. This can lead to reduced profitability to the overall Group.The Group, where possible, actively hedges commodity exposures but in some cases it is not possible or in certain instances is prohibitively expensive to put such hedging in place. As a result, the Group accepts the inherent exposures associated with dealing in these commodities. Group procurement actively develops new supply chain sources and works with
the businesses in developing long term sustainable sources.
Regulatory
(Regulatory/Political)
The risk of adverse regulatory changes and the adverse impact that these may have on the financial and business model of the Group. Failure to comply could result in enforcement actions, legal liabilities, damage to the Group’s reputation and loss of shareholder support. Some of the important regulatory risks facing the Group are:
» the possible imposition of increased carbon taxes on peat briquettes;
» the trend towards the increased dilution of peat with nonpeat based materials in retail horticulture products in the UK
market;
» a new and currently still uncertain EU regulatory framework for electricity from 2018 with the introduction of the Integrated Single Electricity Market (I-SEM) in October 2018 and the expected consequential reduction in the annual capacity payments for power plants;
» the changing regulatory landscape which is driving increased biomass usage in the peat fired generating plants with resulting supply chain and cost implications; and » increased regulations covering the extraction of peat and the
expiration of the public service obligation on the two ESB peat fueled Plants.
Also, the impact of Brexit and the consequences of this on Bord na Móna’s businesses, particularly the retail horticulture
business, which exports large volumes of products to the UK market, is still unknown.
When developing its strategic plan the Group tries to ensure that plans to deal with the regulatory risks facing the businesses are developed and implemented where possible. Through innovation and supply chain developments, the Group continues to tackle regulatory change that is impacting on the operating performance of the businesses. Capital investment has been approved to address certain regulatory risks. In some cases the Group has to “take” (i.e. accept) the regulatory impact as it is not possible to mitigate the risk.
Strategic
(Business Transformation)
The Group currently has a number of significant business transformation change management projects underway and a
number planned in its businesses and at Group centre. These projects are critical to driving down the cost base in the Group to position the Group to meet future business challenges and to assist in the strategic development of the Group. It is vitally important to achieve these objectives as failure to do so will result in too high a cost base and not position the Group correctly for the future.
Strong project governance around the various projects across the Group has been put in place with clear timeliness and deliverables. A strong project management team oversees and monitors, in a structured and transparent way, the various projects. Engagement with trade unions and employees takes place on a continuing basis and agreement has been achieved on critical cost reduction and change management initiatives. Clear communication plans have been developed and rolled out across the company explaining the need to change.
Strategic
(Retaining and attracting staff)
The risk of the Group failing to retain, attract and develop the skills, talent and resources required to deliver its business plans, leading to a significant loss of knowledge and potentially gaps in the skill sets required for delivering the Group strategy, all impacting on the attainment of strategic goals.The Group maintains a strong focus on this area and has structured succession planning programmes in place along with management development programmes and a graduate recruitment programme.