Our activities are centred on the potato, which makes HZPC a coherent and standardised company with a low risk profile. Moreover, eighty percent of the purchases stem from variable purchasing contracts, which ensures that HZPC’s purchasing and sales positions are relatively risk-free. The biggest risks for HZPC’s business operations are the following.
The seed potato market is a global market. Our sales can be influenced by phytosanitary obstacles or political measures. These real risks are, however, spread over the 85 countries HZPC deals with, and that means that we are not too dependent on any one country.
Disease risk plays an important role in the cultivation of seed potatoes. Quarantine diseases in particular have a large influence on the availability of seed potatoes. On the one hand, the total acreage is spread over the various growing areas, and on the other, we have prevention systems in place that sufficiently limit the spreading of any possible infections.
The discovery of a quarantine disease at our breeding station would seriously delay the development of new varieties. To reduce that risk, the genetic material of many potential and all commercial varieties are multiplied and stored at several different locations.
Properly functioning ICT systems are essential for our company. This means more than just the continuity of data processing. Communications with most of our business relations are also increasingly being automated, because of which the complexity of and the dependence on systems increases.
Our systems are mostly developed by our own staff. On the one hand this means that we have expert in-house knowledge and experience, but on the other it makes us greatly dependent on a small number of staff members. We have our own backup centre where transaction data and other information is updated on a weekly basis. To safeguard our knowledge sufficiently, we also use permanent contacts outside the organisation. Moreover, the correlations between processes and systems have been accurately recorded in an extensive process description.
We are running a limited foreign exchange risk. The export of seed and consumption potatoes is mostly handled in euros, which reduces the transaction risk. However, the company also invoices licence fees in South African Rands. For this currency we are vulnerable to translation risk. The participating interests in Argentina, Canada, Poland, Great Britain and Sweden are all valued in local currencies. Because of the financial scopes of these companies, we consider these risks to be limited.
Great Britain also applies its Bribery Act outside its national borders. Subsequently, this Act also applies to HZPC's Dutch and international holdings and activities. The British Act in question also holds HZPC responsible for dealings by any third parties that HZPC does business with, which are mostly our agents.
The British Bribery Act is becoming increasingly comprehensive and strict, and can lead to considerable financial penalties. Even worse can be the collateral reputation damage, which can seriously endanger the company’s business operations.
For this reason, a Code of Business Conduct has been drawn up this year to meet the demands of the British law. This Code of Conduct will be introduced into the entire company in the coming year. Managers will instruct their staff. The Board has appointed a compliance officer who must regularly check that the Code of Conduct is being complied with.
We often deliver large quantities of seed potatoes to our customers within a short period of time. Although we regularly use safeguards such as advance payments, letters of credit and bank guarantees, the operating result is susceptible 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. We have not taken out credit insurance. In view of our delivery pattern, such an insurance would currently provide insufficient cover compared to the premiums that have to be paid. For the coming period, a higher payment risk will continue to apply.
In the past financial year, HZPC made payment arrangements with an Egyptian customer to offset the total debt outstanding from this customer. The payment arrangements were fulfilled according to the schedule during the 2013/2014 financial year. In this market, as well, HZPC is conscientious in its dealings.