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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 are reported to the audit and risk committee four times a year.

Key risk profile

The main operational risks currently facing the Group are:

  • impacts of the global recessionary crisis. Like other companies in South Africa and internationally, AECI will be impacted by the current economic crisis. The following areas are of concern to management:
    - liquidity through the crisis;
    - decline of customers’ markets, resulting in decreased sales for the Group;
    - credit risk in respect of customers, especially those based outside of South Africa; and
    - key suppliers’ business continuity through the crisis, especially suppliers contracted for the major capital programme.
  • completion of all growth capital projects currently in progress. The Board has approved R1,7 billion for growth projects for AEL and Chemical Services Limited. To date, the Group has spent R854 million and is projected to spend a further R884 million during 2009 and 2010. It is imperative that these projects be completed timeously and within approved budget; and
  • safety, health and environmental (SHE) 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.

Management of key risks

The Group’s executive committee regularly reviews the business environment. Management is focusing on:

  • tightly controlled cash management;
  • working capital management; and
  • cost reductions.

During 2008, the Group restructured its debt to a longer-term arrangement with various financial institutions.

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.

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. More detail is given in the corporate citizenship chapter of this annual report.