Integrated Reports Senwesbel Consolidated Financial Statements 2018 - Page 45

21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects thereof on the group’s financial performance. The methods and assumptions used for the year are consistent with the previous year. Major risks have been identified and are managed as set out below. 21.1 FINANCIAL RISKS 21.1.1 Market risks 21.1.1.1 COMMODITY PRICE RISK The value of the grain commodities and the fair value of pre-season forward purchase contracts on the statement of financial position are exposed to commodity price risk. The group uses derivative instruments to manage and hedge exposure to commodity price risk. In accordance with the group’s risk management policy, only minimal unhedged market positions exist from time to time. The value of available commodities, the net value of futures contracts and option contracts and the value of the net position of the pre-season contracts indicate an effective hedge. The hedging instruments used consist of futures contracts and option contracts. The net revaluation difference of the instruments used for hedging was taken into account against the value of the grain commodities and the fair value of pre-season contracts. The value of commodities on the statement of financial position reflects the market value thereof at year-end and the fair value of the futures contracts, option contracts and pre-season contracts is also included in the statement of financial position. Positions that are not hedged on the Safex market leave Senwes with an exposure to price movements. This risk is exacerbated during low market liquidity and high market volatility. Senwes maintains a strict policy and limits are set at low levels with regard to open positions, whether speculative or operational in nature. The status of open positions is monitored daily and reported to appropriate senior management. The net open position as at 30 April 2018 is not material. The following line items on the statement of financial position are affected by commodity price movements: GROUP Inventory Derivative financial instruments (assets) Trade and other payables Derivative financial instruments (liabilities) Total NOTES 2018 R’m 2017 R’m 7 253 146 17.1 37 1 14 (21) (24) 17.2 (13) (167) 256 (44) The potential impact of changes in Safex prices are illustrated below: GROUP 2018 R’m 2017 R’m Increase of R400 in Safex prices 70 34 Increase of R250 in Safex prices 52 17 Increase of R100 in Safex prices 32 (2) Decrease of R100 in Safex prices 5 (32) Decrease of R250 in Safex prices (19) (57) Decrease of R400 in Safex prices (47) (84) 21.1.1.2 TRADING RISK Market risk with regards to trading relates to potential losses in the trading portfolio due to market fluctuations such as interest rates, spread between current and future prices of commodities, volatility of these markets and changes in market liquidity. Risk limits are set to govern trading within the risk appetite of the group via forward purchase and sales contracts. Forward purchase contracts represent contracts with producers for the procurement of physical commodities in future. The forward sales contracts represent contracts with clients for the sale of physical commodities in future. Senwesbel Limited Reg no: 1996/017629/06 SENWESBEL ANNUAL FINANCIAL STATEMENTS 2018 44