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 may prevent the achievement of business goals and strategic objectives.

The Board is responsible for the risk management process and is assisted in its responsibilities by the Risk Committee. The day-to-day responsibilities for risk management and the design and implementation of appropriate processes to manage risk reside with management.

The Board is satisfied that there is an ongoing process for identifying and evaluating and managing significant risks and, where weaknesses are identified, these are addressed promptly within the Group and its operations as risk mitigation processes are part of the Group’s overall risk management framework. Risk management is clearly defined within the risk management framework which has been implemented in all material subsidiaries and joint ventures under the Group’s control.

A Board Risk Committee approves the risk strategy and the policies that are formulated and amended by the Executive Committee and Senior Management. This system assists the Board in discharging its responsibility for ensuring that the wide range of risks associated with all of the Group’s operations are managed effectively in support of the creation and preservation of shareholder wealth. Full reviews of the risk control and disclosure processes are undertaken regularly.

AECI has established an Enterprise Risk Management Framework, with supporting standards, that provides an overarching and consistent framework for the assessment and management of risks. Risks are ranked using a common methodology. Where a risk is assessed as material, it is reported and reviewed by the Executive Committee and Senior Management as part of the risk management escalation process.

The risk management system meets regulatory requirements. In conducting its annual review of the effectiveness of risk management, the Board considers the key findings from the ongoing monitoring and reporting process, management assertions and independent assurance reports. The Board also takes into account material changes and trends in the risk profile and considers whether the control systems adequately support the Board in achieving its risk management objectives. The Board receives assurance, from regular internal auditing reports and, where considered necessary, from other reports on risk and internal control throughout the Group.

Key risks are reported to the Executive Committee and Senior Management to create assurance on business risks and to enable the prioritisation of risk management activities within the AECI Group.

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 to ensure that, where required, necessary corrective action can be taken.

To ensure the best financial performance possible in 2011 and beyond, the Group’s Executive Committee will need to focus on and manage the following in the coming year:

• the successful ramp-up of AEL’s ISAP plants and Senmin’s PAM plant and the development of markets for the sale of new capacity;
• remaining cost competitive in a global procurement environment where the rand remains strong;
• continuing to enable a Group structure that ensures optimal performance in terms of good corporate governance to support the entrepreneurial spirit of the business;
• continuing to attract and retain talented and competent people;
• finalising a new Water Use Licence for Modderfontein, to the mutual satisfaction of the relevant authorities and the Company;
• safety, health and environmental (SHE) considerations. These are risks which remain inherent in AECI’s businesses. The wellbeing of employees and contractors, customers and the community at large is of paramount importance. It is also 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;
• the ongoing integrity of key production facilities;
• remaining ahead of competitors in terms of technology and its application; and
• continuing to provide excellent products and customer service in an increasingly competitive environment characterised by skills shortages.

Overall responsibility for overseeing risk and its proper mitigation, where required, has been centralised as a corporate function for the benefit of AECI’s individual businesses and for the Group as a whole.

In managing SHE risks, the Group is guided by a formal SHE policy, supported by a set of standards. Regular training and reporting are in place across the Group. More details are given in the Corporate Citizenship chapter of this Annual Report.