RISK MANAGEMENT

BY UNDERSTANDING AND PROPERLY MANAGING RISKS, AECI PROVIDES GREATER CERTAINTY AND SECURITY FOR ITS EMPLOYEES, CUSTOMERS, SUPPLIERS AND STAKEHOLDERS. THE COMPANY IS BETTER INFORMED, MORE DECISIVE AND CAN MOVE WITH GREATER CONFIDENCE TOWARDS THE ACHIEVEMENT OF ITS GOALS.

The close alliance between risk management and strategic decision-making increases the probability that AECI will not only be able to minimise its downside risks but also to capitalise on its opportunities. This is enhanced by maintaining an appropriate balance between risk and reward in the business.

Risk can never be fully eliminated. For this reason, management has designed and implemented a process to identify, assess, manage, monitor and report on the significant risks faced by individual Group companies and by AECI as a whole. This involves the assessment of the broader environment in which the Group operates and includes monitoring of the Group’s internal and external context. The latter includes political and economic landscapes, and conditions in industry and labour and financial markets. The work involves analysing media articles, research materials, industry benchmarking studies and economic outlook reports. This also serves to identify future risks and opportunities in a timely manner.

Underpinning all activities are the Group Risk Management policy and the Group Enterprise Risk Management Framework (“the Framework”), based on the principles of the International Guideline on Risk Management (ISO 31000) and King III. AECI’s risk management process is supported by a software application that is in place Group-wide.

LEVEL OF RISK MATURITY

AECI’s maturity level, as determined through an assessment based on the adopted Risk Intelligence Maturity Model, remains on the border between “semi-integrated and change driven” and “intelligent, integrated and optimised”. The characteristics of the various states of maturity are detailed in the first graphic below.

To reach the desired risk maturity level, more focus is being placed on:

further entrenching the risk culture across all entities in the Group;

improving accountability and responsibility for risk management;

further integration of risk management into strategy development and implementation;

incorporating and maturing the identification and management of upside risk (opportunity risk management) in line with King III and ultimately King IV; and

revision of the Group’s risk appetite and tolerance thresholds in line with the financial and risk Delegation of Authority.

THE ROAD AHEAD — EMBEDDING A RISK-INTELLIGENT AND RESILIENT ORGANISATION

The establishment of the context of risk management is the foundation of its good management and is vital to successful implementation of the risk management process.

Given the Group’s challenging and rapidly evolving external environment, contextual analysis is crucial for the provision of proactive and informed risk information that supports timely decision-making and leads to effective strategy execution. Scanning the external environment involves a multi-dimensional assessment of key elements that shape and are shaped by the Group’s actions.

The concept of resilience was introduced into the AECI’s Framework in 2016. Resilience is a strategic objective that helps an organisation prosper. It boosts the ability to be more adaptive, competitive, agile and robust. Resilience refers to the preparedness for disruption to the status quo. It provides the framework for understanding how value is created and establishes the relationship between the delivery of value and dependencies or vulnerabilities that could affect it.

A Business Continuity and Operational Resilience project to improve the Group’s understanding of its operational risk exposures, identify potential single points of failure, and develop and implement appropriate risk responses was initiated in 2016 and will be developed further during 2017 and beyond.


INITIAL   INFORMAL   STANDARDISED AND
GOVERNANCE- DRIVEN
  SEMI-INTEGRATED
AND CHANGE-DRIVEN
  INTELLIGENT, INTEGRATED
AND OPTIMISED
  • AD HOC/CHAOTIC
  • NO FORMAL RISK MANAGEMENT (“RM”)STRATEGY
  • NO USE OF STANDARDS, TOOLS AND TECHNIQUES
 
  • RM PREDOMINANTLY “RISK SPECIFIC”
  • LIMITED FOCUS ON INTEGRATION
  • RISK VIEWED SOLELY AS AN EVENT WITH A NEGATIVE CONSEQUENCE
  • AWARE OF TECHNIQUES WITHOUT THE FORMAL APPLICATION OF STANDARDS
  • NO DIFFERENTIATION BETWEEN “RISKS” AND “HAZARDS”
 
  • REPORTING FOCUS
  • COMMON FRAMEWORK, PROGRAMME STATEMENT AND POLICY
  • HIGH LEVEL RISK ASSESSMENTS
  • MANAGEMENT OF ALL RISK TYPES IS NOT APPROACHED UNIFORMLY
  • RISK VIEWED LARGELY AS AN EVENT WITH A NEGATIVE CONSEQUENCE
  • USE OF STANDARDS
 
  • CHANGE MANAGEMENT APPROACH TO RM
  • COORDINATED RM ACROSS BUSINESSES AND ACTIVITIES
  • ALL TYPES OF RISKS ARE MANAGED THROUGH A UNIFORM SYSTEM
  • RISK IS VIEWED AS UNCERTAINTY AND LINKED TO OBJECTIVES
  • DRIVEN BY PERFORMANCE-BASED STANDARDS
 
  • ENTERPRISE-WIDE APPROACH TO RM
  • RM DRIVES PROACTIVE AND INFORMED DECISION-MAKING
  • COMPANY AND RM PROCESSES ARE FULLY INTEGRATED
  • RM IS EMBEDDED IN CULTURE
  • RM IS A STRATEGIC ADVANTAGE
  • SOUND UNDERSTANDING OF STANDARDS AND USE OF TOOLS AND TECHNIQUES

AECI ENTERPRISE RISK MANAGEMENT FRAMEWORK

INTERNAL
CONTEXT SETTING
  EXTERNAL
CONTEXT SETTING
  RISK MANAGEMENT
CONTEXT SETTING
This is the internal environment in which the entity seeks to achieve its objectives:
  • GOVERNANCE
  • STRUCTURE
  • CULTURE
  • CAPABILITY
  • POLICIES,PROCEDURES, IT SYSTEMS ETC.
  This is the external environment in which the entity seeks to achieve its objectives:
  •  POLITICAL
  •  ECONOMIC
  •  SOCIAL
  • TECHNOLOGICAL
  • LEGAL
  • ENVIRONMENTAL
 

Here the approach and boundaries are defined and applied to the risk assessment at hand:

  • SCOPE ANDBOUNDARIES
  • DEFINE RISK CRITERIA
  • RISK ASSESSMENTMETHODOLOGY

RISK TYPE   RISK DESCRIPTION   KEY CONTROLS

PREVENTABLE

 

Safety, health and environmental issues. These are managed in accordance with the Group’s values, policies and standards.

Safety, health and environmental issues are always the highest priority in a Group dominated by explosives and specialty chemicals businesses — from raw material handling to production, to the transport of products, their application and safe disposal at the end of their life cycle.

 
  1. Comprehensive safety, health and environmental management systems are in place in all businesses.
  2. Effective incident reporting, emergency management and business resumption management.
  3. Promotion of a culture of excellence and compliance in accordance with AECI’s values and world-class standards.

PREVENTABLE

 

Credit risk for major and medium-sized customers, leading to a material decline in the sustainability of these customers’ businesses and the potential loss of Group revenue/market share.

 
  1. Credit management policy.
  2. Key account management strategies.

PREVENTABLE

 

The attraction and retention of skilled and diverse resources.

AECI’s people are key if it is to deliver future growth in line with its stated strategy. The attraction and retention of high performers, sometimes in countries and in disciplines where skills are scarce, is important. Acquiring certain skills in line with AECI employee diversity requirements has proven to be a challenge in some areas.

 
  1. Succession planning and talent mapping.
  2. Promoting and entrenching the Group’s position as the employer of choice through inter alia training and development, remuneration and long-term incentives that reward excellence.
  3. “Back to base” strategy to give employees from other countries South African experience to learn the AECI way of conducting business.

STRATEGIC

 

The threat of new products/market disruptors.

This includes the substitution of minerals, products and technology affecting both AECI and its customers.

 
  1. Focus on and delivery of AECI’s innovation initiatives to accelerate growth through inter alia diversification, increased market penetration and technology investments.
  2. Focus on R&D.
  3. Gathering and interpretation of market intelligence.
  4. Involvement in key influencing industry forums.

STRATEGIC

 

Local and international competitor activity in countries and markets where AECI operates, with a negative impact on the Group’s growth strategy.

 
  1. Continue to offer existing and potential customers value-adding product and service solutions backed by world-class technology and a globally competitive cost base.
  2. Maintain an unwavering customer-centric focus.
  3. Demonstrate a sustained commitment to innovative product and service solutions.

EXTERNAL

 

Political, economic and regulatory uncertainty, leading to difficulties in establishing or maintaining businesses and product lines in AECI’s chosen markets.
Recent challenges included shortages of hard currency in some of the countries in which the Group operates and socio-political unrest in others.

 
  1. Ongoing country risk monitoring.
  2. Application of financial risk management policies and practices Group-wide.
  3. Targeted geographic diversification strategy.

EXTERNAL

 

Major supply disruption from a key supplier in the Group value chain. This includes the potential sustained and frequent disruption of water, gas, ammonia and electricity supply for AECI’s operations and those of its customers.;

 
  1. Supply contingency agreements and plans.
  2. Business Continuity Management plans of key suppliers.

EXTERNAL

 

Extreme and unpredictable weather events and failure of climate change mitigation and adaptation.

Effects of this were felt through the harsh drought conditions experienced in South Africa and other Southern African countries for most of 2016 and the opposite effect of destructive flooding after very high rainfall in Central Africa. These phenomena had a negative effect on AECI’s mining, water treatment and agrochemicals businesses.

 
  1. Geographic diversification of businesses.
  2. Technology developments, e.g. water recycling.
  3. Ongoing monitoring of/adaptation to predicted weather patterns in regions where the Group has presence.

EXTERNAL

 

Global commodity price and currency fluctuations, in countries where AECI operates, leading to increased operational costs and a decrease in absolute contribution and margins.

 
  1. Implement detailed policy (hedging process) on exposure to foreign exchange rates.
  2. Transfer cost to customers (pricing).
  3. Monitor key commodity prices.
  4. Drive the diversification strategy with regard to regions and customers.

 

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