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RISK MANAGEMENT

INTRODUCTION

The employment of an effective risk management process is critical to Hulamin achieving its strategic and operational goals, particularly in the current environment of change and uncertainty.

Hulamin recognises that risk is intrinsic to the business and that there is a balance to be struck between managing risk and exploiting opportunities. The group’s response to identified risks includes acceptance, avoidance, transfer and mitigation, as informed by the group’s risk appetite and tolerance levels.

It is Hulamin’s policy that risks should be understood and managed through a relevant and formal structure to facilitate the achievement of the business’s long-term objectives, which objectives recognise the interests of all stakeholders in the business. The formal structure assists in:

  • Identifying and evaluating risks
  • Setting acceptable risk limits
  • Monitoring risk management actions and controls
  • Assessing the effectiveness of risk management.

RISK MANAGEMENT FRAMEWORK

Hulamin’s risk management framework provides the basis for the implementation of a consistent, efficient and economical approach to identify, evaluate and respond to key risks that may impact Hulamin’s objectives. The framework also addresses the specific responsibilities and accountabilities for the Enterprise Risk Management (ERM) process and the reporting of risks and incidents at various levels within Hulamin. The framework, which is based on the ERM framework published by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission, assists Hulamin with the aligning of its risk appetite and strategy; pursuing business objectives through transparent identification and management of acceptable risk; prioritising risks to ensure that resources and capital are focused on high priority risks faced by the group; enhancing risk response decisions; reducing operational surprises and losses; identifying and managing multiple and cross-enterprise risks; seizing opportunities; improving allocation and deployment of capital; ensuring compliance with laws and regulations; and increasing the probability of achieving objectives.

RISK MANAGEMENT REVIEW

  • The board of Hulamin is ultimately responsible for the governance of risk of the group and assumes overall ownership thereof.
  • The board carries out its responsibilities for risk management via the Risk and SHE Committee which has oversight of the group’s enterprise risk management framework, policy and processes.
  • There is also a Hulamin Risk Management Committee, a sub-committee of the Hulamin Executive Committee, which together with the Hulamin SHE Committee, is accountable to the Risk and SHE Committee for designing, implementing and monitoring the process of risk management and integrating risk management into the day-to-day activities of the various departments.
  • The Hulamin Executive Committee, supported by management, supports Hulamin’s risk management philosophy; promotes compliance with the risk appetite; identifies, assesses and manages risks within their spheres of responsibility consistent with risk appetite and tolerances; and manages the implementation of risk reduction actions and appropriate internal controls.
  • All Hulamin employees are responsible for executing enterprise risk management in accordance with established directives and protocols.
  • A number of external stakeholders often provide information useful in effecting enterprise risk management, but they are not responsible for the effectiveness of Hulamin’s enterprise risk management.
  • Various external and internal parties provide risk assurance and compliance

Principal Risks

The Risk Management Committee conducts a formal review of the most significant risks and the group’s responses to these risks three times a year. These are reviewed by the Risk and SHE Committee twice a year.

The key strategic risks of the group, extracted from the group risk register, are shown in the table below. These risks have been assessed according to materiality and likelihood on an inherent and residual risk basis.

Internal Control and Assurance

The Hulamin board is responsible for establishing and maintaining an effective system of internal control which is designed to provide reasonable assurance that the group’s business objectives will be achieved in accordance with the group’s risk appetite.

A key element of the system of internal control is the review by assurance providers who assess the adequacy and effectiveness of the controls.

The group’s internal audit function is responsible, inter alia, for the following:

  • Effectiveness of internal financial controls: Internal audit provides a written statement annually to the Audit Committee on the effectiveness of the systems of internal financial control; and
  • Effectiveness of internal controls and risk management: Internal audit provides a written statement annually to the board on the effectiveness of the systems of internal control and risk management.

Specialist assurance providers are used to assess the adequacy and effectiveness of controls in certain instances. These include environmental and safety audits. The output of the risk management process, in conjunction with the work of the independent assurance providers, indicates to the directors that the controls in place are adequate and effective.

This assurance recognises that the organisation is dynamic and that at any point in time there are new areas of risk exposure which may require management attention. As such, there is a continual focus on ensuring that the control environment is understood and maintained at the required level. Assurance efforts are documented in the combined assurance plan.

Key Strategic Risks (threats)  
Principal risk*  Risk response  Link to strategy** 
Security of local rolling slab supply
5
 
  • Ongoing engagement with BHP Billiton and other key stakeholders regarding the future of the Bayside cast house
  • Ongoing optimisation of casting facilities
  • Continue to locate additional sources of suitable rolling slab
  • Investment in aluminium scrap separation, processing and recycling facility will increase slab production by improving throughput through reduced melt cycles
4
5
 
Security of supply and
pricing of LPG
6
 
  • Established close contact with refinery in planning shuts
  • Alternative supplies of LPG are available, although at a price
  • Additional storage facilities have been created by suppliers
  • Continue to develop alternative sources of LPG, particularly gas imported through Durban harbour
  • Pursue the securing of piped natural or methane-rich gas at competitive rates to reduce dependence on LPG and reduce costs 
2
5
 
Long-term Rand overvaluation
10
12
 
  • Grow local market users of Hulamin’s product
  • Ensure Hulamin is competitive through driving:
    • Most profitable production mix
    • Maximisation of sales volumes
    • Ongoing reduction of cost and improvements in efficiency
    • Development of world-class capability 
1
2
3
 
Electricity supply disruption
6
 
    • Ability to accommodate peak power demand reductions
    • Have capacity to reduce demand if required during load shedding
    • Continue to work with Eskom to ensure Hulamin has adequate electricity allocations 
5
 
Increase in competition in local market from imports
12
 
  • Focus on developing OEM market sectors in South Africa, particularly can body
  • Re-apply for tariff protection
  • Enhance non-tariff barriers where possible 
1
2
3
5
 
Profitability of current high margin export products decline as a result of long-term increase in supply by existing and emerging competitors from low cost parts of the world
10
 
  • Monitor competitor actions
  • Pursue manufacturing excellence and low costs
  • Optimise production mix and entrench positions in profitable market sectors
  • Continue with progress up the profitability curve and new product development
  • Develop local and regional sales, including the promotion of local market OEM type products, e.g. can body stock 
1
2
3
5
 
Security of supply and pricing of local melting ingot
2
3
4
 
  • Ongoing engagement with relevant stakeholders to promote the value of the aluminium industry to the local economy
  • Explore alternative supply strategies
  • Improve mix of products generating recoverable third-party scrap, thereby placing less reliance on primary metal supply 
3
4
5
 
Use by governments of market-based instruments, specifically carbon taxes, to induce behavioural changes that contribute to lower GHG emissions
8
 
  • Ongoing engagement with relevant stakeholders to promote the value of the aluminium industry to the local economy
  • Engagement with government regarding an appropriate approach to the levying of carbon tax on the aluminium industry
  • Ongoing efforts to increase Hulamin’s use of third-party scrap inputs in place of primary aluminium
  • Ongoing efforts to reduce Hulamin’s electricity and gas consumption 
3
5
 
* Icons refer to section on external environment, opportunities and threats here
** Refer section on strategic objectives here

 

 

STRATEGIC OBJECTIVES KEY

3
Grow local and regional sales
1
Achieve benchmark operational performance
4
Secure competitive aluminium supply
2
Achieve global cost competitiveness
5
Supportive regulatory environment