Risk management

The first step in the crisis management process was to establish the Crisis Management Team (CMT). The Global Crisis Management Team consists of the senior management of our company. Farm Frites Global Risk and Crisis Management is based on a risk assessment that is defined by the impact and probability of the specific risk. The approach is used globally within the company.

The company has identified and analysed the following risks:

Operational Risk on a large scale with implications to continue operations
Food Safety Risk
Loss of financial liquidity
Non-conformity with legislation
Raw material issues
Below, you can read how Farm Frites deals with different kinds of risks from these two groups, especially with the availability of raw material, which was defined as the highest risk for the company.

Raw material and commodity risk

• Potatoes – Farm Frites uses potatoes as raw material for the production process. Therefore, the company has implemented a risk management tool for its main raw material, potatoes, to assure business stability and continuity. Farm Frites’ price risk management policy is to limit the price risk by entering into commodity contracts with suppliers for most of the planned production volume on average.
• Other raw materials – used for packaging materials, such as carton and foil. For these, Farm Frites signs long-term contracts, if possible. For the sourcing of oil, the company is making use of commodity trading contracting on future markets.
• Gas and Energy – gas and energy are the main components within the sourcing category. To produce fries, the value of these is a significant part of the total cost price. These utilities are sourced on medium-to-long term contracts (2 to 4 years).

Financial and operational risk

• Interest rate risk and cash-flow risk – the interest rate risk to the fixed rated debt is limited to possible changes in the fair value of loans taken up and granted. The interest rate for this debt is fixed over the entire term and the debt is held to maturity. Farm Frites’ policy is therefore not to use derivative financial instruments to control interim or other interest fluctuations on this debt.
• Liquidity risk – Farm Frites monitors its cash position by using successive liquidity budgets. The management ensures that the cash position is sufficient to meet Farm Frites’ financial obligations towards creditors and to stay within the limits of the loan covenants as agreed with the banks.
• Currency – A substantial part of the sales of Farm Frites is in non-Euro denominated countries. The most important foreign currencies are the British pound, Polish zloty and United States dollar. The currency risk on the British pound is managed by entering into currency forward contracts to hedge outstanding trade receivables and expected sales for a period of one year. Farm Frites manages its currency risk in Poland by means of its subsidiaries in same country, through which production and sales occur in the same currency. The currency risk for outstanding trade receivables in US dollars is hedged by purchases in the same currency.
• Health and Safety issues and Non-conformity with food legislation – this risk is covered by HACCP, GMP and Quality policy. A crisis management manual is available and tested. The Quality department is responsible for food law requirements. In addition, close interactions exist with an external expert company and lawyers.