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A look into risk management at Goodmills Group

May 1, 2019

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Scott Wellcome, Director – Grains Risk Management at Goodmills Group gives us an insight to the biggest challenges faced by risk professionals and the fundamentals of an efficient risk management framework

A conversation with Scott Wellcome

You work for a major milling company. Could you summarise for us the main risks this sector is facing?

As with a lot of industries in the commodities world currently, one of our major risks are the very low margins, which do not leave much room to make many mistakes when making sales, grain purchasing or hedging.

There remains still, we believe an element of over-capacity, but a lot of this “spare” capacity is managed by families or individuals, where the facility has been owned for years, and as such they invest little in the facilities, and just continue to operate whilst they can make a margin and / or the mill continues to work.

Commodity price volatility is also a major risk, as 80% of our costs are the price we pay for the raw material, so the risk management of this is vitally crucial.

Cash flow also remains a risk, but fortunately we have solid owners and have secured funding at competitive rates.

Securing reliable supply is another major risk, as without such operating our business would be virtually impossible.

Next May, at ComRisk, you’ll take part in a session that will discuss companies’ approach to risk management, with an emphasis on what the fundamentals of an efficient risk management framework are. What are in your opinion these fundamentals?

I believe that it’s vitally important to firstly acknowledge and accept the companies’ risk appetite, this is essential to then drive the risk management strategies.

A high level of both technical and business knowledge, so that the risk manager is able to support the increased success of the organization.

There needs to be coherent risk policy that is understood from the stakeholders all the way through the organization, a real buy-in, that having an efficient risk management strategy will not just add value, but is imperative for the company’s longevity.

Ideally have in place a suitable CTRM system that meets the needs to the company

Soft skills such as communication and relationship management are also of importance.

Risk management uses more and more data. What are the challenges you face in that area as a risk manager?

The main challenge is arranging this data into a reporting system that is clearly and easily understood by all. The data needs to be efficiently digested and reported, as markets move rapidly and any delays in the reporting of a company’s risk, or the ability for others to understand the risks, can have disastrous consequences.

I would also say for a company where the majority of its available working capital is spent on maintaining and improving its flour mills, convincing the management that investment in a state of the art CTRM system is a challenge, as it’s not so easy to highlight the returns in $/MT as it is by an improvement in say a mills utilization rate.

Written by: Commodities People