Risk Management
Foskor’s risk management strategy aims to provide an early warning system and initiate measures to avoid or mitigate any potential business losses.
We define risk as any emerging or potential event or situation which could affect our ability to achieve our objectives. The strategies we adopt, the expectations of our stakeholders, the economic and natural environment in which we operate, as well as the current and future legislative requirements with which we have to comply, all possess inherent risks, but also potential rewards. Risk management therefore aims to identify opportunities as well as analysing business threats.
Our enterprise-wide risk management (ERM) framework provides a structured approach to effectively and proactively identify, analyse, evaluate and mitigate such events, providing us with reasonable assurance that our objectives will be met.
OUR ERM FRAMEWORK HELPS US ACHIEVE THE FOLLOWING OBJECTIVES
| Aligning risk appetite and strategy | Management considers the risk appetite of both the Group and divisions, as determined by the Board, in evaluating alternatives, setting objectives, and developing mechanisms to manage risks. |
| Enhancing risk response decisions | A framework is provided for management to identify and select alternative responses to risk. |
| Reducing operational losses | The framework has enhanced management’s ability to identify potential risks, establish appropriate responses and reduce associated costs and losses. |
| Capitalising on opportunities | Regular consideration of a full range of potential events helps management identify and capitalise on opportunities. |
| Improving allocation of capital | Reliable risk information allows management to assess overall capital needs, enhancing capital allocation. |
| Ensuring compliance with laws and regulations | Regular consideration of applicable laws and regulatory frameworks effectively reduces compliance risks. |
We have secured appropriate property damage, business interruption and liability insurance cover at commercial premiums and terms. Regular reviews of our insurance strategy are fed back into the ERM framework.
We have made substantial progress in achieving the objectives outlined above and will continue to refine our ERM. Embedding the updated ERM processes into our operations will be a key objective in the forthcoming financial year.
RISK REVIEW PROCESS
The Board of Directors delegates oversight of Foskor’s ERM to the Board Audit and Risk Committee. The Executive Committee ensures that our exposure to risk remains within our risk appetite levels and is additionally charged with identifying opportunities we can exploit. A strong link between these committees is maintained to ensure that risk management standards are maintained and processes executed effectively.
Divisional Risk Committees oversee risk management at an operational level and the Internal Audit and Risk Committee at a Group level. In order to ensure consistent and appropriate decision-making, we keep all functional levels of our business informed about our current ERM thinking.
KEY RISKS AND OPPORTUNITIES
A summary of our key strategic risks, as determined through our ERM process, is presented below. A selection of these is discussed in the section that follows. This represents a prioritisation of the material issues.
KEY STRATEGIC RISKS
High Potential Impact Issues
Plant breakdown – Acid Division
Production inefficiencies – Mining and Acid Divisions
Volatile industrial relations climate
Phalaborwa Mining Co. performance
Non-compliance with environmental, safety and health legislation
Dependency on Transnet Freight Rail for rail logistics
Attraction and retention of skills
Medium Potential Impact Issues
Input prices
Foreign exchange rate volatility
Availability of critical resources for strategic project execution
Low Potential Impact Issues
Entrance of new competitors disrupting the global balance of supply and demand
Non-compliance with the Competition Act
Customer Concentration
Non-compliance with the MRPDA
Lack of product diversification
In summary, it is in our interest to manage our exposure to the Phalaborwa Mining Company (PMC) and Transnet Freight Rail’s (TFR) Phalaborwa – Richards Bay corridor. Our Acid plant is old and we urgently need to improve its reliability, productivity and environmental compliance. We also have to proactively manage South Africa’s volatile industrial relations climate and attract strategic and technical skills to maintain business excellence. It is important that we manage the effect of fluctuations in the exchange rate and the cost of raw materials intelligently, and develop new markets by diversifying our product range.