Risk management provides important support in protecting and securing the future potential of the HOCHDORF Group. The Board of Directors of the HOCHDORF Group bears ultimate responsibility, with implementation delegated to the Group Management.
The HOCHDORF Group has implemented a risk management process for all Group companies. Using workshops and individual interviews, risks are identified and assessed in terms of their potential financial impact on the HOCHDORF Group's results and their probability of occurrence. Risks are categorised as strategic, operational, financial and other risks. Based on this, risk minimisation measures (measure, person responsible, time, required resources) are defined and risk reporting is carried out.
The Board of Directors of HOCHDORF Holding Ltd approved the risk assessment in the reporting year and monitors the implementation of the defined measures by the Group Management. The process is repeated once a year. The Group Management also reviews and evaluates risks and their implementation every six months and informs the Board of Directors immediately of any deviations.
The following risks, among others, have been identified as significant risks for the HOCHDORF Group:
- Cluster risk (debtors) in the Baby Care division due to the customer Pharmalys, who is also the debtor of outstanding purchase price payments (see explanations on risk minimisation in note 33 of the notes to the consolidated financial statements of the HOCHDORF Group, "Assessment as a going concern").
- Access to raw material milk: Access to the raw material milk is essential for the further positive development of the HOCHDORF Group. To ensure that this remains the case in the future, HOCHDORF is increasingly focusing on product innovation, the development and expansion of its own brands and high value-added markets, alongside the continuous improvement of our cost efficiency in order to be able to offer sustainably attractive milk prices. On the other hand, HOCHDORF strives for strategic partnerships with milk supplier organisations.
- Regulatory conformity of products: The continuously rising demands of our customers as well as the increasing regulatory requirements pose ever new challenges for the production of baby food products, which is why HOCHDORF has developed and is constantly refining corresponding systems and testing standards. Integrated quality management is carried out in close cooperation with our customers and suppliers as well as the internal departments, including Development, Quality and Regulatory Affairs, Procurement and Production. Deviations and deficiencies are methodically analysed, documented and discussed with the parties involved in order to continuously develop "operational excellence" in the sense of a continuous improvement process. HOCHDORF attaches great importance to safe production across all stages of the value chain and thus to safe products for our customers and consumers
Regulatory and political risks
In principle, the HOCHDORF Group is dependent on a wide range of regulatory and political aspects. Changes could have a negative impact on the business activity, financial situation and/or profitability of the HOCHDORF Group (e.g. legal and regulatory changes in export markets, customs agreements, food requirements, etc.). This can result in high price and volume fluctuations on the procurement and sales markets. HOCHDORF monitors economic and political developments in the individual countries in order to keep procurement and sales risks as low as possible.
The HOCHDORF Group is exposed to various financial risks in the course of its international activities. These include exchange rate and interest rate risks as well as credit, liquidity and capital risks. Liquidity risks are managed through central cash management by ensuring that planned liquidity requirements are covered by appropriate financing arrangements.
Finally, the HOCHDORF Group's risk policy includes hedging risks through comprehensive and efficient insurance cover. An international insurance programme serves this purpose in the areas of liability, product protection, property insurance and transport, among others.
Internal control system
The HOCHDORF Group has set up an internal control system (ICS) with the aim of ensuring the effectiveness and efficiency of its operations, the reliability of its accounting and compliance with legal requirements. The ICS is an essential part of the risk management system. The compliance and effectiveness of the ICS will be subject to a fundamental review in 2021 in order to further increase its effectiveness.
The internal audit supports the Board of Directors in its monitoring and controlling duties. It provides an independent and objective auditing and consulting service, which is designed to review, evaluate and continuously improve the effectiveness of the risk management, the controls and the management and monitoring processes using a systematic and targeted approach.
In 2020, audits were conducted in the areas of corporate governance, inventory management, human resources and data security. The results were recorded in written audit reports which, in addition to the findings and recommendations of the internal audit, contain the opinion of the management with planned measures and times for implementation. The report is distributed to the members of the Board of Directors and the Group Management. The reports and the defined measures are presented and discussed during the Audit Committee meetings. Group Management checks the implementation of the defined measures and keeps the Audit Committee continually informed.
The internal audit of the HOCHDORF Group was outsourced in the reporting year and carried out among others by PricewaterhouseCoopers with the support of specialists from the relevant departments. In 2020, the Board of Directors decided to strengthen internal auditing with the creation of its own organisationally independent position of "Senior Internal Auditor", who will report to the Chair of the Audit Committee. This position was filled as of 1 March 2021.