In accordance with the provisions of its corporate social responsibility policy, proper risk management, striking a balance between the will to create value for its stakeholders and the risks associated with business, commercial, operational, labour, financial and social initiatives, is a priority for Viscofan.
Underpinned by the ethics code of society and its values, this priority is present in the good corporate governance practices, ensuring an adequate distribution of functions, rights and responsibilities.
The company’s risk management system is founded on an ethics code establishing the ethical principles and behavioural guidelines complemented by internal regulations that can be divided into: general policies, specific policies and local policies.
This risk-management system and its derived policies are framed within the limitations established by the applicable legislation to the Viscofan Group’s business activity.
Mentioned policies have to be applied in all group companies over which effective control is exercised by Viscofan and concerns the company employees, including senior direction and Board of Directors itself.
Viscofan Group accounts with different internal bodies undertaking supervision and control of the different risks that may arise from the activity of Viscofan with more or less probability or materiality:
As part of its regular work, the Global Risk Committee revised the map of existing risks in 2015 in accordance with the code of ethics, internal regulations and the Be MORE Strategic Plan.
It evaluated the risks identified in four categories, according to the COSO framework:
Strategic risks: These are defined as those risks affecting goals at high level, in line with the company’s mission. The following have been identified as specific risks within this category:
Information risks: Risks affecting the reliability of the information provided and objectives related to the availability of sufficient capital and resources to carry on with the company’s activity to achieve financial targets. The following have been identified as specific risks within this category:
Operational risks: Risks affecting those goals directly associated with the efficient use of resources and longterm continuous activity. The following have been identified as specific risks within this category:
Compliance risks: These risks affect the objectives confirming compliance with applicable rules and regulations, including internal legislation, as well as protection of employees and society.
The objectives were manifold:
Corporate risk management is not a simple linear process in which each component only affects the next one in line, but rather a multidirectional, iterative process in which one component may affect any other.
All these measures are reflected in the internal regulations, in the process that governs the internal financial information and in the code of conduct implemented throughout the Group.
In this regard, the most significant changes made in 2015 were related to the elimination of risks associated with the vegetable food business following the sale of the IAN Group for €55.8 million cash, representing a capital gain of €0.4 million after tax. The risks associated with the pension plans in the USA were also reduced, as were, at a previous date, those associated with the German plans, situating the risk of these liabilities within tolerance levels which the Group considers acceptable.
Within the objectives of excellence, the requirements regarding the control of risks identified have been tightened; in particular, the tolerance levels for risks associated with EHS, Environment, Health and Food Safety, and those associated with safety in the work place have been lowered considerably.
As for the rising likelihood of occurrence, the risk of competitive intensity is still high in certain markets which are affected by, among other things, exchange rate fluctuations, growing geopolitical uncertainty, volatility in the macroeconomic environment, raw material and energy price formation, and some competitors’ need to improve their competitive positions.
Through the different organs of risk control and monitoring, the Viscofan Group tasked the Global Risk Committee to produce an inherent and a residual map for those risks which, due to their materiality, might compromise value creation for its stakeholders and, consequently, hinder the accomplishment of the objectives sought by its MORE initiatives:
Knowing where each risks sits on the inherent and residual maps calls for continuous dialogue with the company’s stakeholders through the channels established by the company. This system allows the company to gauge how well the measures adopted have performed in terms of mitigating the risk, focus its attention on those risks which are still beyond the comfort zone and apply further corrective and preventive measures in order to reduce the impact and/or likelihood of the risk occurring.
The Global Risk Committee meets at least twice a year to review and identify the risks inherent to the business, although additional unidentified risks may exist which may hinder accomplishment of the Viscofan Group’s objectives.
INHERENT RISK MAP DECEMBER 2015
E1 Natural Disasters
E2 Country risk
E3 Competitive risk. Competition
E4 Competitive risk. Customers
E5 Competitive risk. Substitute products
E6 Reputational risk
E7 Company ownership
E8 Obsolescence risk due to Innovation
E9 Cybersecurity risk
I1 Computing contingences
I2 Preparation and integrity of the financial information
I3 Financing policy
I4 Exchange rate
I5 Prime rate
I6 Budgetary control
I7 Pension Plan
O1 Material damage risk
O2 Business continuity risk
O3 Energy market
O4 Customer satisfaction
O5 Risk of transportation
O6 Shortage of raw materials
O7 Public liability
O9 Labour force
O10 Group cohesion
O11 Food risk
C2 Work-related accidents
C3 Safety and hygiene in the workplace
C4 Evolution of regulatory framework
C5 Compliance with food legislation
C6 Compliance with obligations arising from business transactions
C7 Societal risks
C9 Criminal liability of legal persons
It is important to point out that risk is inherent to business activity and the actual company diversification, at a geographic level (sales and production), and with regard to the product range, is a measure in itself that mitigates the risks identified on the risk map. However, this global nature also means that, during the fiscal year, adverse circumstances also develop, making it difficult to achieve the objectives established in the budget for 2014.
Nevertheless, the measures implemented and the quantification of these risks did not prevent the main financial objectives defined and communicated to the investing community from being reached in the tax year.
In this context, some of the risks to materialise with the most significant impact, are as follows:
The global economic situation and the economic and monetary policies conducted by the competent authorities in the various countries have given rise to the fluctuation of a number of currencies in which the Group operates, with particular mention of the Brazilian Real and the USA Dollar, not only in average terms, but the volatility between maximum and minimum exchange rate values was particularly significant in the course of the year
Functioning of the control systems
Viscofan attentively watches for opportunities to take out exchange rate hedges, endeavouring to cover the transaction flows between different currencies, as required by circumstances. Over the last few years, the company has strengthened the treasury team and has contracted information systems in order to improve the hedging capacity to minimise risk at a lower cost.These hedges, however, may have been taken out at less favourable costs than the final spot prices.
2015 was characterised by extremely volatile energy prices
Functioning of the control systems
Viscofan is making considerable investments directed at optimising energy costs from a financial and environmental point of view. In turn, when dictated by circumstances, the company makes hedging on energy prices, involving a reasonable cost or reducing the budget compliance risk. Nevertheless, the volatility of energy prices, and the reduction in the Brent price have meant that certain hedges have been made at a higher cost than the spot price, or that the investment payback periods have been greater. However, the risk control measures have meant that the energy costs are for a reasonable amount with regard to the budget approved.
As a result of a strong US dollar compared to other currencies, some competitors focused their commercial and promotional efforts on the US market.
Functioning of the control systems:
This market has been monitored, maintaining disciplined commercial policies which will not harm the financial performance objectives. The projects specific to the USA which aim to enhance our levels of service and quality have been strengthened in order to protect our market share better in adverse scenarios.