Risk report

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Within the Reunert group, risk management is considered to be a key business discipline designed to balance risk and reward, and to protect the group against risks and uncertainties that could impede its business objectives.
For more on the risk committee see the Governance report
The board acknowledges its responsibility for the risk management process as a whole, as well as forming an opinion on the effectiveness of this process. Management is accountable to the board for designing, implementing and monitoring the process of risk management, as well as integrating it into day-to-day business activities.

Appropriate mitigation and/or remedial actions are identified and driven through a risk improvement management system.

All group companies conduct formal risk assessments and operational risk management meetings are held at least twice a year. The Reunert chief executive, chief financial officer and senior management attend operational risk management meetings. Internal audit attends all group risk meetings and helps to facilitate the process.




Our major strategic risks are determined through a top down and bottom up review process. Given that the nature and effect of the major risks change from time to time, we have not ranked the risks in order of priority. All these risks are important to the Reunert group and may impact on our ability to deliver on our strategy. The table that follows sets out the major strategic risks identified through our risk management process together with our risk mitigation strategies.
Major strategic risk Risk description Risk mitigation strategies
ECONOMIC AND BUSINESS ENVIRONMENT Growth rates in the local and global economies are expected to remain low in the medium term. The current trading environment is characterised by low selling price inflation, continuing cost increases and subdued customer spending.

The volatility and pressures experienced within various sectors of the global economy has a direct impact on the South African economy.

Structural constraints in the local economy, industrial unrest and delays in state sponsored projects have placed strain on our businesses as sales cycles are extended.
The group places significant emphasis on effective cost and working capital management, productivity improvements and the development of new products and services.

Fixed costs are actively managed to ensure that they remain below the breakeven point.

Whilst labour unrest is largely uncontrollable, the majority of our operating companies have signed multi-year contracts with relevant unions.
INCREASED COMPETITION AND COMMODITISATION All of our operating segments are impacted by increased product competitiveness, inexpensive imports and multinationals exploring new markets.

Our ability to compete effectively depends on pricing, quality of customer service and developing new and improved products and services in response to customer demands and new technologies.
The group focuses on maintaining and improving key customer relationships and complete life cycle costs, growing sales volumes and focusing on value creation rather than lowest price.

Providing top quality products and services superior to those of our competitors, while maintaining our margins through continued operating efficiencies, is a key strategic focus.

Furthermore, where appropriate, complementary solutions’ offerings are considered to provide diversification.
VOLATILITY IN COMMODITY PRICES AND EXCHANGE RATES Several of the group’s businesses either import or export products and services and are therefore affected by volatile exchange rates and changes in commodity prices, specifically copper and aluminium. Exchange rate risk and commodity price risk are actively managed within the tolerance levels set by the group’s risk management policies.

Through our hedging philosophy, the group takes appropriate cover or transfers the risks associated with movements in the exchange rates and commodity prices to customers.
DIVERSITY, TRANSFORMATION AND RETENTION OF CRITICAL SKILLS To sustain Reunert’s businesses, the group understands the importance of creating a highperformance, ethical and inclusive culture for all our employees thereby being able to attract, develop and retain the skills we need.

Transformation is a key strategic objective for the board and the group.

Failure to meet South Africa’s transformation objectives could have material consequences for our reputation, access to resources, licence to operate and ability to attract and retain skills.

More onerous legislation, potential penalties and slow progress in achieving employment equity plans could negatively impact on the group’s transformation objectives.
The development of sufficient management and technical skills is an integral part of our human resources strategy in order to pursue our growth strategy and sustain productivity in our businesses.

Transformation will continue to be a key focus for 2014 and individual targets have been set for all business operations.

Various strategies have been implemented to retain and mentor key staff and grow the pipeline of suitably skilled historically disadvantaged South African employees within the group.

Succession planning is carefully considered by the group executive committee, and the nomination committee. Key staff members are identified and properly incentivised and remunerated.
NON-COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS Authorities globally are intensifying efforts to enforce compliance with laws and regulations and non-compliance could result in fines, reputational damage and negative publicity.

The group could also, in the event of noncompliance, be subject to civil litigation and black listing in relevant jurisdictions.
Reunert is focused on identifying changes in the regulatory landscape that have implications for the group on a pro-active basis and ensuring that we are prepared to respond to these changes.

The group company secretarial and compliance manager monitors existing and proposed legislation and identifies potential impacts on the businesses, with the help of experts where required.

Systems and processes are in place to ensure compliance with applicable laws and regulations by all employees and annual training and certification by affected employees takes place.
The board is committed to increasing shareholder value by understanding the calculated risks that are taken to optimise opportunities and to protect against risks and uncertainties that could threaten the achievement of the group’s strategic objectives. This commitment is reflected in management’s continued attention to the importance of effective risk management through efficient risk reporting processes that enable management and the board to make quality informed decisions.
Sandton, 20 November 2013