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 threats and exploiting opportunities. The group’s possible 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’ 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. Hulamin strategic and business objectives are aligned to the risk management and governance structures.
The adoption of framework, ISO 31000, which is based on the ERM framework published by the International Organisation for Standardisation (ISO) of the Treadway Commission:
- assists Hulamin in aligning its risk appetite and strategy;
- pursuing business objectives through transparent identification and management of 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.
linking risk, strategy and governance
The strategic objectives are cascaded to business plan objectives and operational objectives. Risks are reviewed against these objectives in the relevant governance structure.
Risk management governance 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 Safety, Health and Environment (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.
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 three times a year, and at every meeting of the executive committee and Board.
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.
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.
2017 Risk Focus Summary
|Reflecting on 2017||Status|
|Rolling out technology to simplify risk reporting
and risk administration
|Focus in risk culture and embedding risk||In progress|
|Risk review session||Completed|
|Risk appetite review||Completed|
|Operational risk framework||Completed|
|Strategic risk framework and risk scenario planning||In progress|
|Developed risk procedure and processed||Completed|
- Risk culture and embedding risk
- Embedding business continuity
- Advancing strategic risk management and scenario planning
- Focus on operational risk mitigation and controls linked to KPI delivery
|Trend/context||Emerging uncertainty/principal risk||Subsidiary risk
(Principal risk consequence)
|Risk type||Risk response||Link to strategy||Capital impacted||Risk trend|
Weak economic climate in South Africa.
|Sovereign rating downgrade by rating agencies of local-currency denominated debt below investment grade.||Dramatic weakening of currency resulting in
short-term liquidity constraints.
|Low growth in the local market.||Low economic growth. Constrained local market demand for aluminium semi-fabricated products.||THREAT||
|Potential withdrawal of foreign investment. (Key customers withdraw from South Africa).||THREAT||
|Reduced investment in and/or failure of
|Global oversupply of aluminium semifabricated products, driven by continued capacity investments in China
||Increased competition in global and local markets for market share.||Rolling margins in key product categories continue to decline in USD terms.||THREAT||
|Increased relevance of access to required technology and skills to develop products of the future.||Inability to develop new high value, niche products to improve business profitability and long-term sustainability.||THREAT||
|Global oversupply of oil and gas industry persists and local gas opportunities are exploited, leading to a period of low crude oil and gas prices which are supported by local infrastructure investments.||Infrastructure investment in South Africa (distribution pipelines, LNG import terminals) to take advantage of low cost energy.||Significantly lower cost of energy to Hulamin through natural gas pipeline supply.||OPPORTUNITY||
|Growing trend in protectionist trade policies around the world and support to local manufacturing industries||Chinese aluminium producers get closed out of key markets such USA through punitive tariff protection measures||Hulamin gains an advantage over Chinese competitors to supply key markets such as USA.||OPPORTUNITY||Grow sales of high value products in key developed markets such
|Competition in South Africa from low cost countries increases substantially.||THREAT||
|South Africa’s preferential trade access into key developed markets is reviewed.||Loss of competitive advantage relative to other exporters into developed markets.||THREAT||
||Social/ relationship Financial||Increasing|
|Economic activity curtailed by energy scarcity due to delayed investment in infrastructure and production/conversion capacity:
||Energy scarcity in South Africa||Inconsistent supply of and increasing cost of electricity.||THREAT||
|Uncertainty in sustainability of Hillside smelter.||THREAT||
||Financial Social/ relationship||Stable|
|Accelerating impact of climate change, and
increasing global environment regulations.
|Local and international resolve towards low-carbon economy||Introduction of Carbon Tax in||THREAT||
|Water scarcity||Disruption to manufacturing operations.||THREAT||
|Loss of confidence in US authorities ability to deliver growth-boosting fiscal policies result in a weaker US Dollar. At the same time South African political stability improves, supports foreign investment and growth resulting in a stronger Rand.||South African Rand strengthens against the US Dollar and remains at stronger level for an extended period||Significantly stronger Rand results in major
negative impact on Hulamin’s EBIT.
|New and increasing use of digital activities and technologies to improve business value.||An opportunity arises as to how these new technologies will be used to achieve business strategy objectives||Leverage product and process know-how,
achieve production efficiencies and cost
reduction, improved agility and closer
customer collaboration and service
|Strengthen the core (of the business) to compete|
|Increase rolling margins|
|Investing in the assets of tomorrow|