MYTILINEOS HOLDINGS | 2014 Sustainability Report - page 84-85

MYTILINEOS Holdings Sustainability Report
2014
MYTILINEOS Holdings Sustainability Report
2014
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8.3 Risk Management
The Group has defined “risk" as a sum of uncertain and unpredictable
situations that may affect all its activities, its business operation, its eco-
nomic performance as well as the implementation of its strategy and
the achievement of its goals. A specific approach to risk management
through regular internal audits has been established in all activity sec-
tors, in order to ensure the appropriate and effective implementation of
the procedures for:
Identifying and assessing risk factors.
Planning the risk management policy.
Implementing and evaluating the risk management policy.
In addition, the Internal Audit Department, which forms an independent
organisational unit that reports to the Board of Directors, evaluates
and improves the risk management and internal audit systems,
while also ensuring that MYTILINEOS HOLDINGS S.A. complies with
the established policies and processes, as these are laid out in the
Internal Operation Regulation, the legislation in force and the legal and
regulatory provisions.
With activities in three key business areas – Metallurgy & Mining,
Energy and EPC Projects – the Group is faced with many different risk
factors. Of these, the table below mentions the most important ones
which could directly impact on our economic performance and overall
evolution towards sustainable development.
The Group has established specific and comprehensive Risk
Management Processes. All Management Executives are involved in
the identification and initial assessment of risks, so as to facilitate the
work of the Management Councils of each business sector, as well as of
the Board of Directors of each legal person, in planning and approving
specific actions under the approved Risk Management Processes.
Key risk factors
with potential direct impact on the Group’s operation
Market Risk
The global economic conditions remain volatile. The Group faces risks from LME price fluctuations, the EUR/USD
parity, the broader economic and financial environment as well as the market for aluminium end products. In this
context, the Group takes a number of actions to hedge its exposure to market risk, improve its cost structure and
ensure its liquidity.
Increase in the cost of
raw materials
The Group’s operating results are affected by increases in the cost of raw materials, such as metallurgical coke,
caustic soda and other key materials, as well as by the freight costs for the transportation of such materials.
To address this risk, the Group seeks to negotiate and “lock” its key freight contracts with competitive terms.
In parallel, it has introduced a new system for the evaluation of supply prices for raw materials and is also
implementing an ongoing cost optimisation and reduction programme.
Moreover, the Group’s operating results can be affected by severe delays when the drop in the price of cost items
linked to the LME price or the EUR/USD parity is not enough to offset the corresponding reduction in the LME
prices or in the value of the US Dollar over the same period.
Availability of Greek
bauxites and Market
Concentration
To meet the needs for Alumina, the Group depends heavily on the availability of Greek bauxites. By operating its
own mines, through its wholly-owned subsidiary DELPHI-DISTOMON, the Group covers approximately 38%-40%
of its needs in Greek bauxites. However, in the coming years there may be difficulties in obtaining licenses for
or drilling (finding) new bauxite deposits in Greece. Moreover, the Greek bauxite market is already concentrated
in a small number of suppliers. This, coupled with the possibility of further market concentration, could impact
negatively on the Group’s costs for the procurement of Greek bauxites in the future. For these reasons, the Group
seeks to negotiate multi-annual bauxite contracts and strategic alliances with the Greek producers.
Health, safety and
environmental laws and
regulations
The Group's activities are subject to laws and regulations on health, safety and the environment.
The costs for compliance with these regulations involve either investments or significant spending in actions for
the safe management of industrial waste and for environmental rehabilitation.
Environmental issues for which the Group may be responsible could arise in the future in its current facilities and
in facilities which it previously owned or operated in, even if to this day such issues are not or could not be known
to the Management or have not yet arisen.
Climate change, relevant
laws and regulations and
greenhouse effects
The Group’s operational margins might be affected by changes which may be made to Group production facilities
whose greenhouse gas emission levels are high, as well as to Group facilities with increased requirements
in energy, as a result of regulatory arrangements primarily in the EU, where the Group is active. The potential
impact of the future legislation and of the regulatory framework on climate change, as well as of the European
and international conventions and agreements, cannot be estimated with any certainty given the wide-ranging
purposes of these potential changes. The Group may be forced to carry out significant investments in the future,
as a result of the need to comply with the amended legislation and the new regulations. Finally, as a result of an
eventual deficit or surplus in the management of CO
2
emission rights and also as a consequence of its high energy
consumption levels, primarily for the production of Aluminium, the Group might recognise significant expenses
or revenues, respectively.
On the other hand, the Group may identify opportunities in the EPC Projects sector, made possible by any one of
the aforementioned changes in the legislation which relate to climate change.
Non-realisation of the
expected long-term
benefits from productivity
and cost reduction
initiatives
The Group has taken and may continue to take initiatives in the areas of productivity and cost reduction, in an
effort to improve performance and reduce total production costs. It is always possible that these initiatives cannot
be implemented in their entirety or that the estimated savings to result from them cannot be fully realised, for
reasons which also include circumstances beyond the Group’s control.
Political, legal and
regulatory issues
The Group’s energy-related activities in Greece remain - to a significant degree - regulated by the State and
depend on issues and decisions of a political, legal and regulatory nature. The developments within this
environment, which could lead to delays in the effective liberalisation of the energy market, might impact on
the Group's activities, future results and the value of its assets or of Group assets whose operation requires a
significant consumption of energy products.
In addition, the Group may also be affected by adverse developments in connection with political and regulatory
issues related to its EPC activities abroad, especially so in countries characterised by political instability.
(G4-46)
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