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 an enterprise-wide risk management system that places a strong emphasis on strategic risks at a Group level (strategic risk register) and on strategic risks at the business level (business risk registers). In this risk management system, a strong focus is placed on managing risks that management can influence through the risk process as well as an emphasis on future action items and the responsibility for these is of key importance. Risk management is embedded in each business unit 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:
- A risk strategy that includes objectives and principles;
- 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 and the Management team;
- Reporting procedures that 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 risk appetite statements in conjunction with the strategic risk process, then monitor and report on these statements.
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.
1. Financial (Banking Facilities)
Risk and Impact: 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 unforeseen circumstances.
Mitigating Actions: 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 per cent of its long‑term debt at fixed rates. At 25 March 2020, the Group had €125 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.
2. Operational (Climate)
Risk and Impact: 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.
Mitigating Actions: 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.
3. Operational (Planning permission)
Risk and Impact: The risk of the Group not obtaining planning permission for a number of key infrastructural projects which are included in the strategic plan.
Mitigating Actions: 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.
4. Operational (Health and Safety)
Risk and Impact: 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.
Mitigating Actions: 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
5. Operational (Cyber Security)
Risk and Impact: 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. Cyber security risk is now recognised as one of the fastest growing risks for organisations internationally.
Mitigating Actions: 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.
6. Operational (General Electricity Pricing & Biomass and Carbon for Edenderry
Power station (EPL))
Risk and Impact: The risk of the non‑operation of the EPL 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 station 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.
Mitigating Actions: The Group has been very successful over the past number of years in sourcing biomass for EPL. A dedicated team has been established to source further indigenous biomass and develop a supply chain for imported biomass to supply EPL. This imported biomass will fill a demand while the market develops further indigenous biomass from the private forestry sector to mature and become available. 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 EPL.
7. Operational (COVID‑19)
Risk and Impact: The risk of the impact of the Corona Virus pandemic on our businesses as a result of significant supply chain disruption, sickness/death of employees, loss of business, recession etc. The true economic impact of these events is not yet known but there is a risk that they will lead to significant financial loss and future implications for the Group.
Mitigating Actions: A cross functional management group has been established to deal with all the issues associated with the COVID‑19 pandemic. Additional investment has taken place on our I.T capability to enable most management and administrative staff to operate from home. Protective equipment has been purchased for staff in various businesses. Some operational equipment has been modified and additional resources deployed to ensure that work practices are safe.
8. Operational (Retaining and attracting staff)
Risk and Impact: 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.
Mitigating Actions: 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.
9. Operational (New Business Growth)
Risk and Impact: 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.
Mitigating Actions: 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 New Business. 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.
10. Regulatory (Regulatory/Political)
Risk and Impact: 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 new regulations covering the movement and the extraction of peat, 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 Edenderry Power station with resulting supply chain and cost implications. The ongoing uncertainty over BREXIT remains a macroeconomic threat to the markets the group operates in.
Mitigating Actions: 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. In some cases when dealing with Regulatory risks the Group has no option but to accept these risks. The Group is actively managing any supply chain risks associated with Brexit.