Elpitiya Plantations Plc Annual Report 2010/11 - Colombo Stock ...

Risk Management
Risk management refers to a coordinated set of activities and
methods that is used to direct an organization and to control the
many risks that can affect its ability to achieve objectives.
Risk and reward bear a direct relationship to each other.
Managing risk in this ever changing dynamic business
environment for any organization is a challenge. As the diversity
of an organization increases, so does the complexity of risk
management. The Elpitiya Plantations PLC is of the view that a
disciplined approach to risk management is important in ensuring
that the company only accepts risks that are adequately
compensated for when pursuing its strategic objectives. Our
goal is to optimize the tradeoff between risk and reward.
The Board of Directors of Elpitiya Plantations PLC has placed an
effective risk management system to minimize, monitor and
control the impact of adverse events or to maximize the realization
of opportunities.
Operational Risk
An operational risk is, as the name suggests, a risk arising from
execution of a company’s business functions. It is a very broad
concept which focuses on the risks arising from the people,
systems and processes through which a company operates.
A sound system of internal controls is in place to mitigate the
operational risk. Periodic checks are carried out at the estate
level to ensure the quality and the cost effectiveness of the
system of controls. In addition, the Company’s assets are
adequately insured to minimize any financial losses.
Product Quality Risk
This is viewed as the inability to maintain consistency in quality of
the product which causes low prices and poor demand.
Nayapane & New Peacock Estates which are located in
Pussellawa Region and Dunsinane Estate in Pundaluoya Region
have obtained ISO 22000 Food Safety Certification and Deviturai,
Polgahawila and Talgaswella Tea Factories located in Low
Country Region are working towards obtaining ISO 22000 Food
Safety Certification. The Marketing Division is in close contact
with all Estate Managers ensuring that product quality is
maintained at the highest levels on a consistent basis. The HR
Division is providing ongoing training to all sectors such as Field
Workers, Factory Workers and Executives on the aspects of the
quality and adopting TQM procedures
Interest Rate Risk
Interest rate risk is the risk of financial loss that investors,
businesses and borrowers face when interest rates rise.
The Company is utilizing the long term funds at concessionary
rates available under the ADB (Asian Development Bank) line of
credit, Plantation Trust Fund and E-Friends loan scheme to its
fullest potential. The company has also obtained multi facilities
from various banks under different terms and conditions which
allow to maintain appropriate mix of floating and fixed, different
maturities, etc.
Negotiations with banks take place often time to obtain the best
possible interest rate for company borrowings.
Human Risk
Human risk is the potential that a chosen action or activity
including the choice of inaction will lead to an undesirable
outcome. The notion implies that a choice having an influence on
the outcome exists. Potential losses themselves may also be
called “risks”. Almost any human endeavour carries some risk,
but some are much more risky than others.
As the industry is highly labor intensive and unionized low
productivity, work stoppages, go slows, strikes, etc. would
adversely affect the overall performance of the Company. A
Collective Agreement has been signed between the Trade Unions
and the Employer’s Federation of which the Company is a
member. This ensures industrial peace between the Managements
and Trade Unions. In addition, continuous training and
development programs including welfare are carried out to
motivate, develop and retain the human resource of the Company,
Legal Risk
The potential loss that may occur to a business as a result of
insufficient, improperly applied, or simply unfavorable legal
proceedings in the country in which the business is operate.
The Company with the assistance of the Aitken Spence Group
Legal Department, Company Secretaries and Registrars
endeavor compliance with all legal, company secretarial, stock
market and other regulations.
Liquidity Risk
Probability of loss arising from a situation where there will not be
enough cash and/or cash equivalents to meet financial
obligations.
Liquidity is directly linked with the performance of the Company.
Finance division of the Company strives to ensure sufficient funds
are available to meet the debt commitments and working capital
requirements. Loans and Overdraft facilities are arranged with
banks to meet any cash flow deficits.
Climatic Changes
This risk arises due to adverse climatic changes which affect the
performance of the Company
The Company adopts best agricultural practices, planting of
selected cultivars in order to mitigate loss of crop due to
unfavorable climatic changes. In addition, various research
programs on soil & foliar analysis for fertilizer recommendations,
shade-planting, fuel wood planting, pest & disease control, etc.
are carried out together with the Tea and Rubber Research
Institutes.
20
Elpitiya Plantations Plc Annual Report 2010/11