Risk management

The board sets the group risk strategy policies in liaison with the executive directors and senior management and decides the group’s appetite or tolerance for the risks Grindrod will or will not take in the pursuit of its goals and objectives.

The board is responsible for risk management and for implementing an effective process to identify risk, measure its potential impact and activate whatever is necessary to proactively manage such risks. Besides the quarterly assessments of risk at board meetings, a separate annual meeting of the board is held which focuses on the review of the group risk management process. The board has not appointed a separate risk committee.

Executive and operational management are accountable to the board for designing, implementing and monitoring the process of risk management and integrating it into the day-to-day activities of the group. Group risk management facilitates risk reviews at all subsidiary and joint venture companies. This includes detailed reviews of all risk areas, legal compliance, contracts and insurance policies. Matrices are compiled setting out the risks identified at the risk reviews and grading these risks into high, medium and low risks. All risks identified are considered when compiling the field work for the internal audit programme.

All business units must adhere to a comprehensive group standards document covering information technology, human resources, taxation, treasury, financial accounting, internal audit, risk management, company secretarial and corporate governance.

Insurance is only arranged with reputable underwriters and brokers. Group insurance cover includes hull and machinery, war risk, P&I cover, freight demurrage and defence cover, charterers liability, purchaser interest, cargo liability cover and comprehensive non-marine insurances cover. The group has a significant selfinsurance facility in respect of its motor vehicle fleet.

The increasing diversity of operations has necessitated continual development and integration of risk management processes.

The following risks have been identified as significant to the group:

RISK TYPE

MANAGEMENT OF RISK

STRATEGIC RISK

Management addresses these risks by:
•	Understanding the markets they operate in – sectorially, geographically and in global or regional business culture terms;
•	Being informed as fully as possible about the market situation and the market cycle;
•	Combined “through the cycle” experience base of Grindrod’s executive and management team;
•	The use of an established supporting expertise base including financiers, insurers, agents, brokers and legal advisors; and
•	Operating within set financial limits and board review.

MARKET RISK

Substantial decline in world shipping markets

•	Management continually assess shipping markets utilising their own experience and detailed research;
•	Risks are managed through careful timing of fixed charters, timing of entry into markets, a solid contract base and diversification of risk; and
•	The board has set risk measurement benchmarks and the group’s risk model reflecting the exposure to shipping risk is continuously updated. Furthermore, an annual review of the model’s assumptions and the benchmarks is also carried out.

The impact of the current crisis in the global economy and credit markets on shipping markets and specific strategies to manage this risk are discussed in the chief executive officer’s report.

Exposure to commodity price fluctuations

•	The trading division uses derivatives, futures, contracts and other instruments on open positions to manage this risk; and
•	A commodity position trading policy is in place which includes a value at risk measurement of all open positions, stress testing and stop losses.

Credit/counterparty risk

Management addresses these risks as follows:
•	Charter counterparties are thoroughly investigated and third party advice is provided to ensure that only well known, secure charterers are contracted;
•	Internal controls require a thorough credit approval process and regular management review;
•	Debtors are reviewed monthly by management;
•	Use of credit guarantee insurance;
•	Operating within set financial limits;
•	Significant exposures require board approval; and
•	The effectiveness of controls is assessed through the group’s internal audit process, as determined by the audit committee.

FINANCIAL RISK

Exchange/interest rate risk

•	The group’s exchange and interest rate policy is set by the board;
•	A detailed review of the group’s foreign exchange and interest rate exposure is reviewed quarterly by the board; and
•	Management performs an ongoing review of the group’s exchange and interest rate exposure.

Risk of non-compliance with loan covenants

•	Loan covenants are continually reviewed to ensure that current loans are well within loan covenant ratios.

Fraud risk

•	Fraud risk factors and internal controls are regularly reviewed and assessed through the group’s risk management and internal audit process;
•	A group Risk Fraud Policy and Fraud Response Plan is in place; and
•	An anonymous whistleblower facility is in the process of being implemented within the group.

Funding risk

The group has a detailed funding plan and liquidity gap analysis in order to facilitate adequate funding for its expansion programme and to ensure that the group’s funding is at levels that result in an efficient cost of capital, while maintaining an acceptable level of risk.

OPERATIONAL RISK

Financial claims from contractual exposures

•	Internal controls are in place to minimise claims for damages in respect of cargo claims and third party negligence; and
•	Insurance cover is in place in the event that a claim arises.

Loss or breakdown of key assets

•	Management plays a key role in ensuring that adequate insurance cover is held for all key assets;
•	Where necessary, such insurance has been extended to business interruption cover; and
•	Management also ensures that strategic spare parts for equipment are held in storage and that high maintenance standards are upheld.

Significant off-hire or loss of a ship

•	The exposure to loss of charter income or revenue as the result of significant off-hire or loss of a ship is proactively managed by ensuring that high maintenance and safety standards are complied with and by using competent brokers and standard charter party agreements;
•	Provision is also made in the budget process for possible off-hire to minimise the effect of any lost charter income on the group’s results;
•	Lost income as a result of the loss of an owned ship is not insured, but would generally be recovered as owned ships are insured in excess of replacement values; and
•	Insurance is in place to cover the value of ships on charter for which the group holds purchase options and newbuildings under construction.

Environmental and climate change risks

•	The application of high level safety standards and use of modern, highspecification ships greatly reduces this risk;
•	Environmental cover is insured under P&I policies and oil pollution has coverage of up to US$1 billion per vessel per incident;
•	All environmental management efforts within group subsidiaries are guided by the board approved group-wide environmental policy. A more detailed review of the group’s environmental policy is set out in the environmental performance.
•	The board requires and monitors through bi-annual quality, health, safety, security and environmental reports that each of the subsidiaries strictly complies with this policy; and
•	Subsidiary companies are required to formulate key environmental objectives with achievable targets and to report on performance against these targets for the year.

LEGAL RISK

•	Operating companies rely on service providers such as auditors and attorneys as well as trade associations and classification societies to keep them abreast of any significant changes in legislation; and
•	Tax legislation and the numerous changes are regularly reviewed to ensure the group is in compliance with all relevant tax legislation. In addition a detailed tax compliance review is carried out on a regular basis by internal audit.

ORGANISATIONAL RISK

Loss of key staff

•	This risk is managed by ensuring competitive remuneration packages and long-term incentives, a progressive work environment, career growth opportunities and succession planning.

Industrial action

•	This is managed by following the appropriate human resources and industrial relations procedures and encouraging a culture of open communication within the group. Further detail is set out in the sustainability report.

IT systems failure

•	Centralised IT systems are backed up with a disaster recovery plan, while the group’s wide area network communications platform is serviced by a fully backed up, outsourced virtual private network (VPN);
•	The group invests in appropriate computer technology to ensure that business units improve efficiencies and remain globally competitive; and
•	The targeted technology refresh cycle is between three to five years, thus avoiding the accumulation of legacy systems throughout the group.

RISKS RELATING TO FINANCIAL SERVICES

•	Grindrod Bank has a separate risk committee as required by the Banks Act, which has the responsibility to manage the risks facing the Bank. These include credit, liquidity, operational, market, compliance, reputational and insurance related risks; and
•	A risk committee charter is in place which defines the role, objectives, responsibilities, duties and authority of the risk committee of the Bank.