Background
Governance, Laws and Regulations

Risk management

Doing business inherently involves taking risks. By taking balanced risks we strive to continuously build on being a financially sound and sustainable company. Risk management is therefore an important element of our corporate governance and strategy development.
HZPC's business is focused on developing potato varieties, selling potatoes, and developing potato concepts and potato knowledge. We always seek to take initiatives that will increase awareness of business risks and internal control. At the same time, we have to be willing to take risks while focusing on providing transparency in our operations.

The Executive Board is responsible for overseeing the risks managed by all employees in all countries where our company operates. When initiating and managing initiatives associated with our business activities, the Board undertakes to establish an adequate functioning of appropriate risk management and control systems. Through our risk management initiatives, we seek to provide reasonable assurance that our business objectives can be achieved and our obligations to customers, shareholders, employees and society can be met.

This chapter reflects the most important risk factors that may influence the achievement of our strategic ambitions. We also describe the corresponding mitigating actions that we have taken. This overview is not intended to be an exhaustive list.

External risks

Strategic
 
Seed potato diseases
International activities 
Operational Attracting talent
Financial
 
Fluctuations in exchange rates
International commercial operations
Compliance Complying with laws and regulations

Internal risks

Strategic IT-systems
Operational
 
International seasonal supply and deliveries

Seed potato diseases
The seed potato market is a global market. Our sales can be influenced by phytosanitary impediments and political factors. Disease risk plays an important part in breeding seed potatoes. Quarantine diseases in particular have a large influence on the availability of seed potatoes. Diagnosing a quarantine disease at our breeding station would seriously delay the development of new varieties.

Mitigating actions:

  • The risk of phytosanitary obstacles and political factors is spread over the more than 80 countries with which HZPC deals. This means that we are not overly dependent on any one country.
  • The total acreage is spread over the various growing areas. We also have prevention systems in place that sufficiently limit the spreading of any possible infections.
  • To reduce the risk of quarantine diseases at our breeding station, the entry of new genetic material is done via contained first production and official checks on highly damaging Q diseases like PSTVd, brown rot and ring rot. The vitro stocks of many potential and all commercial varieties are multiplied and stored at various locations.
  • At our R&D in Metslawier we are building a separate new laboratory to decrease the logistics handling of plants and other materials. This will further reduce the risk of infections occurring by accident. 

International activities
We are a global player, delivering seed potatoes to a growing number of countries. We are therefore exposed to a range of risks, many of which are beyond our control. Unfavourable political, social or economic developments and developments in legislation, regulations or standards can affect our business and results of operations. Our aspiration to stimulate growth in emerging markets could further expose us to such risks.

Mitigating actions:

  • We spread our activities geographically and serve all market sectors, in order to benefit from opportunities across all those sectors and reduce the overall negative impact of any political/social instability. 
  • We carefully monitor the political, economic and legislative conditions across the company’s activities.
  • All decisions about significant investments, and the countries and market sectors in which HZPC conducts its business, are taken by the Executive Board. 
  • Country organisations are part of our organisational structure in order to mitigate country-specific and generic business risks.

Attracting talent
We realize that in order to achieve our growth objectives worldwide we must have the right people with the right capabilities, experience and mindset. We believe realising this can, to a large extent, determine the success of our current and future organization.

Mitigating actions:

  • To continue to be an attractive company worldwide, and to foster and support talent already present within our company. 
  • To continue initiatives begun in 2015 to organize company presentations for adolescents as well as technical, polytechnic and university students.
  • To continue our policy to increase functional capabilities across the company and share best practices amongst colleagues.

Fluctuations in exchange rates
Exchange rate fluctuations can have an impact, albeit limited, on our financial results. We sell seed potatoes to more than 80 countries, largely in Euros. We are particularly sensitive to adverse movements in the South African Rand because of the impact it will have on license revenues. Our participations in Argentina, Canada, Poland and the United Kingdom are valued in the local currencies. As these companies are limited in financial size, we consider the risk and financial impact for our Group low.

Mitigating actions:

  • A centralized cash management system has been installed during 2015 to manage cash within our company for all European companies.
  • During 2016 we will implement treasury and hedging policies for the currencies managed. 

International commercial operations
Our operating result is subject to credit risks. Because of the ongoing worldwide crisis, this risk has considerably increased. The financial position of various buyers is less certain and more difficult to assess. HZPC has not taken out credit insurance. In view of our normal delivery pattern, such insurance would currently provide insufficient cover given the premiums that would have to be paid. For the coming period, a higher credit risk will continue to apply.

Mitigation actions:

  • We regularly use safeguards such as advance payments, LCs and bank guarantees.
  • Credit limits are actively monitored throughout the season.
  • No new deliveries for the new season are allowed until debts from the previous season have been paid. 

Compliance with laws and regulations
HZPC and her subsidiaries may be held responsible for any liabilities arising out of non-compliance with laws and regulations. As HZPC, we do business in more and more countries with juridical compliance processes with which we have to comply. The UK Bribery Act, as mentioned in last year’s Annual Report, is an example of one such law with which HZPC and also other international companies have to comply. Increasingly the risk of non-compliance with laws and regulations can damage our reputation and lead to serious legal fines. 

Mitigating actions:

  • Last year HZPC implemented a company-wide code-of-conduct.
  • The company is dedicated to minimizing compliance risk by fostering an open and transparent culture, continuously educating our employees worldwide, and increasing awareness.
  • In 2016 we want to organize Competition Law and Anti Bribery Law training for our sales team. 
  • We also want to start a programme to monitor significant changes in the legal systems, regulatory controls, customs regulations and practices in the countries in which we operate. 

IT systems
IT systems are becoming increasingly important for our company. The amount of digital exchanges of business transactions with customers, suppliers and other stakeholders is increasing. The amount of research data is also rapidly increasing. Non-availability of our critical IT systems or unauthorized access, through cybercrime or other calamities, can have a direct effect on our production processes, our competitive position and the reputation of the company. Most of our IT systems are tailor-made. On the one hand, this means we have internally well-built systems supporting our current business. On the other hand, it makes us increasingly dependent on a limited number of employees who manage these IT systems. 

Mitigating actions:

  • During 2015 we upgraded our old tailor-made Oracle system to a newer version, Oracle ADF. Our longer term Information Technology strategy is for our IT landscape to converge with a standard ERP system.
  • We are continuously testing and updating the systems used for information security. During 2015/16 we will implement further measures such as document processes, virus protection, anti-spoofing and forensic scans.
  • We centrally monitor access control processes to our key IT systems.
  • We will issue a company-wide directive describing the rules regarding Information Management.

International seasonal supply and deliveries
We deliver large quantities of seed potatoes to our international customers within a short period of time. These deliveries of many different potato varieties to more than 80 countries require careful planning and transport execution in order to deliver the potatoes on time to the designated customer address with minimal loss in quality. These deliveries involve a number of risks. We see this planning and supply process and transportation as vital for customer quality and customer intimacy. During this short delivery season many risks need to be managed that could occur in sorting, packing, transportation, shipment, planning and unloading.

Mitigating actions:

  • The risk of incorrect planning is mitigated by a pro-active customer sales planning and supply chain, and cross-check these with various personnel members via IT systems.
  • We have long-term relationships with transporters and shipment companies who are used to dealing with high quality seed potatoes. These companies are regularly benchmarked and performances are evaluated each season.
  • At the end of each season we carry out a performance review of the most important logistics streams in order to improve on.
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