Corporate Governance

Risk management

The Board recognises risk management as a key business tool to assess the balance between risk and reward in current and new businesses. Risk management also aims to protect the Group against hazards and uncertainties which might prevent the achievement of business goals.

The Board is responsible for the risk management process and is assisted in its responsibilities by the audit and risk committee. The day-to-day responsibility for risk management, and the design and implementation of appropriate processes to manage risk, resides with management.

The risk management process is designed to ensure that:

• all relevant risks are identified and evaluated, based on their potential . impact and their likelihood of occurrence;
• risks and the required processes and controls to manage these risks are assessed in line with the Board's risk appetite; and
• appropriate management information and monitoring processes are in place to manage the exposure to each of the key risks so that, where required, necessary corrective action can be taken.

During the year, each operating unit updated its business risk profile and identified key risks and the controls required to mitigate those risks. A similar process was then carried out to identify those risks and related controls which are important for the Group as a whole. The Group risk assessment was debated and approved by the Board and forms the focus of the internal audit programme for the next financial year. The key risks and their status will be reported to the audit and risk committee three times a year.

Key risk profile

The main operational risks facing the Group currently are:

• environmental and safety considerations. These are risks which are . inherent in AECI's businesses. The well-being of employees and contractors, customers and the community at large is of paramount importance. Further, it is essential that AECI protects the environment in which it operates so as to continue being an acceptable corporate citizen in the territories in which it has a presence;
• completion of African Explosives Limited's "Factory of the Future". A key success factor in restoring margins, establishing a sustainable competitive advantage and creating a platform for growth in the initiating systems business is the completion of the "Factory of the Future";
• delivery of the mining chemicals expansion projects. The Group is investing over R600 million in capital projects to service the growing demand for mining chemicals. Completion of the projects on time and within budget is key to the ambitious growth plans of Chemical Services Limited;
• raw material cost inflation. Many of the Group's products use oil-based raw materials. Although AECI's businesses aim to provide customers with a value-added service for which these customers will pay a premium, it may not be possible in all instances to recover increased input costs resulting from high oil prices; and
• power outages in South Africa. These are likely to disrupt production at local customers. Cost-effective solutions are being sought to reduce the effect of outages.

Management of key risks

The Group's management of safety, health and environmental (SHE) risks is guided by a formal SHE policy, supported by a set of standards. Regular training and reporting are in place. More detail is given in the corporate citizenship section of this annual report.

To manage capital projects, steering committees have been established, project management expertise has been employed and much of the work has been outsourced to reputable project houses. Reporting to AECI's executive committee takes place monthly, and on a quarterly basis to the Board.