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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 the
Group is developed and maintained. Bord na Móna has in the past year, revised its enterprise-wide risk management system to place more emphasis on strategic risks at a Group level (strategic risk register) and on strategic risks at the business level (business risk registers). In this new risk management system, a much stronger focus is now placed on managing risks that management can influence through the risk assessment process. An emphasis on future action items and the responsibility for these is of key importance. Risk management is now embedded in the business at an operating level.

The risk management system provides appropriate governance structures to support risk management practices, formal assignment of risk responsibilities throughout the Group and the procedures to be used, including relevant mitigation actions and controls.

The risk management system includes the following key elements:

  • Two risk registers, a strategic risk register and business risk register;
  • Assignment of clear mitigating action items and responsibilities for both the strategic risk register and the business risk register;
  • 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 risk monitoring plan that outlines the review, challenge and oversight responsibilities of the CRO;
  • A risk monitoring plan that outlines the review, challenge and oversight responsibilities of the management team;
  • Reporting procedures which ensure that risk information is actively monitored, managed and appropriately communicated at all levels within Bord na Móna. The procedures outline the reporting responsibilities of management, the CRO, the RAC and the Board;
  • Embed a strong risk management culture across all levels of the Group; and,
  • Develop a risk appetite statements in conjunction with the strategic planning process, 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
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 these risks.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 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 percent of its long-term debt at fixed rates. At 27 March 2019 the Group had €150 million of revolving credit facilities in place, none of which was drawn. In the past year, the Group has put non-recourse project finance in place for wind farms which will become an important source of funding 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
(Climate)
The overall risk of the inherent uncertainty of various weather patterns on the operating and financial performance of the Group. These include the impact of mild weather on sales volumes during the winter on the Fuels business, the impact of wet springs on sales volumes in the Horticulture business, the financial impact of low wind yields on the wind farms in the Powergen business and the impact of wet summers affecting the level of peat harvested all impact Group profitability. 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.
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. Also, the risk of ESB not obtaining an extension of the existing planning permission for Lough Ree Power (LRP) and West Offaly Power (WOP) stations, which expire in 2020.The Group has an experienced management team that have 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 have provided detailed information and support to ESB with its planning applications for Lough Ree Power and West Offaly Power stations. Both these applications have been lodged and are currently being processed by the relevant authorities.
Operational
(Health and Safety)
The risk of the failure to comply with health and safety legislation and policies due to a lack of enforcement across the Group, or management and employees not following the correct procedures or lack of training all leading to potential injury or death of an employee or damage to property resulting in financial sanction, financial loss and reputational damage.Detailed health and 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 and Safety department also 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 insurer’s 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 is now recognised as one of the fastest growing risks for organisations internationally.The Group has recognised the importance of managing this risk and continually reviews cyber security across the Group with internal and external expertise engaged. Investments in technology and people are made to maintain security around information technology systems to an appropriate standard.
Operational
(Power Stations-Biomass, Electricity Pricing & Carbon)
The risk of the non-operation of the three midland power stations past 2019 due to the inability of Bord na Móna to source sufficient volumes of indigenous and imported biomass at commercially viable prices. The risk of the impact of high carbon-pricing on the ability of the stations to operate profitably. 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. Each of these risks could result in significant financial loss to the Group.The Group has been very successful over the past number of years in sourcing biomass for Edenderry Power station (EPL). A dedicated team has been established to source further indigenous biomass and develop a supply chain for imported biomass to supply the three stations. This imported biomass will fill a demand while the market develops further indigenous biomass from the private forestry sector to mature and become available. Also, for EPL, future carbon pricing is hedged forward on an annual basis and this along with the forward sale of power generated by the station gives certainty of margin. The Group operates a number of different electricity generating assets which utilise different fuels including biomass, wind, gas and peat. The Group has entered 15-year power purchase agreements for a number of these plants which guarantee the price of power generated for those assets. The Group has consistently developed a diversified portfolio of generating assets to mitigate the risk associated with any one individual fuel. The Group recognises that high carbon pricing in conjunction with low electricity prices could have a serious impact on the profitability and future viability of the three stations.
Operational
(Business Transformation)
The Group currently has a number of significant business transformation projects underway and a number planned in its businesses. 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.Strong governance structures around the various projects across the Group have been put in place with clear timelines and deliverables. A strong project management team is overseeing and monitoring, in a structured and transparent way, the various projects, with monthly updates to the Board of Bord na Móna Plc. 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. A clear communication plan has been
rolled out across the Group explaining the need to change.
Operational
(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 programs in place along with management development programs. A graduate recruitment programme has been in place over the past few years. We are committed to providing quality employment opportunities and are investing in management development programs aimed at achieving greater diversity in senior positions throughout the Group.
Operational
(New Business Growth)
The risk of the Group failing to develop new businesses, markets and infrastructure projects which it requires to replace its traditional businesses which are in decline. This could be due to a lack of management focus, human and financial capital, missed opportunities all leading to a decline in the Group scale, significantly reduced employment levels and financial loss.A detailed strategy has been approved by the Board for expanding further the new business areas across the Bord na Móna Group. The Group has put in place dedicated teams for business development across its three growth businesses which are Resource Recovery, Powergen Development and the New Business and Land Development businesses. These cross functional teams incorporate engineering, finance, legal and project management. Significant financial capital has been committed to the further development of these existing
businesses and the new business division. The Group looks at joint ventures also, as a means to bring in external expertise and share risk.
Regulatory
(Regulatory/Political)
The risk of adverse regulatory changes and the 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 non-peat based materials in retail Horticulture products in the UK market; a new Integrated Single Electricity Market (I-SEM) and the new auction process introduced for capacity payments for power plants; the changing regulatory landscape which is driving increased biomass usage in the peat fired generating stations with resulting supply chain and cost implications; new regulations covering the licensing of the extraction of peat and the expiration of the public service obligation on the two ESB peat fired stations. 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 ensures 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. The Group has an active BREXIT plan focusing on the UK supply chain risk in the horticultural business.