Risk management

Understanding key risks and developing appropriate responses to these risks is essential to Foskor’s success. Foskor is exposed to a variety of risks and uncertainties, which may have a financial or reputational impact on the group and which may also impact on the achievement of social, economic and environmental objectives. Foskor’s risk management strategy is at the core of the organisation. Risks and opportunities are identified during risk assessments and are reviewed by various committees to ensure a coordinated approach to risk mitigation strategies.

Foskor’s risk philosophy is conservative and serves to protect the interests of stakeholders. The company’s risk profiling methodology ascertains threats to achieving business objectives. The methodology aligns risk tolerance in the organisation to risk appetite parameters for each division or strategic business unit.

The process of risk management, including the system of internal control, is the responsibility of the Board of directors. Management is accountable to the Board, for designing, implementing and monitoring the process of risk management, and integrating risk management into the day-to-day activities of the organisation. Specific attention is given to Foskor’s key business risks, which are of strategic importance to the organisation and are regularly reviewed by the Executive Committee (Exco), the CEO and the Board.

These processes are geared to promoting staff safety while delivering world-class products. The risk management strategy protects stakeholders by safeguarding investments and the company’s assets. Foskor continues to align itself with the recommendations of King III and the Institute of Risk Management South Africa’s Codes of Practice.

Foskor has adopted an Enterprise Wide Risk Management (EWRM) framework, which is continually evolving and is supported by the same set of risk-based operating standards that underpin the risk management policy. The policy details the risk identification and assessment processes, risk responses and risk assurance activities. The EWRM standards and processes relate to the governance of risk management and management’s responsibility. The EWRM standards establish the rules and instructions for enterprise wide risks that require common treatment across all operations and business units.

Foskor has a business continuity management procedure and plan in place that identifies and evaluates risks to its resources and operations, maintains prevention procedures and mitigates the effects of unforeseen losses. The processes of continuity and recovery are regularly audited, tested and updated.

The business continuity management programme covers:

• Emergency responses, crisis management and business recovery protocols, dealing with notification procedures and interfaces for certain defined events;
• Training requirements; and
• Testing the administration of plans, including auditing plans and procedures once developed.

Foskor’s risks (these include strategic, commercial, operational, compliance and financial risks) have been identified, assessed and uploaded onto the Cura risk management database. The process of assessing risks and ensuring that there are controls and action plans in place to mitigate the risks is an ongoing one.

Among the key risks facing the group are:

• Increased competitor supply of P₂O₅ at lower prices:
  Foskor’s products are sold globally and face intense international competition from other phosphate producers. The group mitigates this risk by entering into long-term supply agreements with major customers.
  
  
• Reliance on distribution networks: The company is dependent on Transnet Freight Rail (TFR) to provide rail services between Phalaborwa and Richards Bay. Disruptions to rail services, and any ad hoc price increments on the part of TFR, may adversely affect Foskor’s business, prospects or financial position. The group continually engages TFR on wagon availability and service delivery. Alternative export routes through Maputo are also being considered.
  
  
• Exchange rate volatilities: Foskor’s revenue is derived substantially from export sales denominated in US dollars. Foskor is therefore directly exposed to the unpredictable financial markets and currency movements. The group uses derivative financial instruments (mainly forward exchange contracts and zero-cost collar option contracts) to hedge against certain risk exposures.