Our risk management

This report is presented by the Company’s Risk and Sustainability Committee (the Committee).

COMPOSITION AND MEETINGS

The Committee consists of three non-executive directors, all of whom are independent. Four Committee meetings were held during the year. The attendance of the Committee meetings was as follows:

Committee member Meeting attendance    
RI Stewart (Chairman) 4/4    
D Cleasby 1/2    
M Haus 4/4    
PM Makwana 2/2 *  
MI Sacks 4/4    
Invitees      
AG Hall 4/4    
D Neethling 4/4    
KB Wakeford 2/2 *  

*see changes to the Board

Representatives of both the internal and external auditors, as well as the Group’s insurance and risk advisors attended all Committee meetings.

ROLE AND FUNCTION OF THE COMMITTEE

The role and responsibilities of the Committee are governed by a formal Charter which is reviewed annually and approved by the Board. The following duties are assigned to it by the Board during the year under review:

• Ensure an appropriate and effective control environment and clear parameters within which risk is managed.
• Oversee issues relating to sustainability.
• Oversee the conducting of a business risk assessment to identify the most significant commercial, financial, compliance and sustainability risks and implement processes to mitigate these risks.
• Assist the Board in setting the risk strategy and policies in determining the Company’s tolerance for risk.

PHILOSOPHY

As a pharmaceutical manufacturing, marketing, and distribution company, Adcock Ingram is exposed to a range of risks. The Group’s philosophy is not to entrench a compliance driven approach, but rather to view risk management as a strategic enabler to ensure proactive and appropriate action is taken to mitigate risk exposure. The Group identifies and manages risk in line with best practices which it views as core in terms of balancing risk and reward.

Adcock Ingram is committed to effective implementation of the COSO Framework of Enterprise Risk Management. Risk and control procedures are enhanced on an ongoing basis. The Company’s Chief Executive Officer is responsible for the overall management of risk while the Risk and Sustainability Committee is the oversight committee on behalf of the Board.

Three members of the Audit Committee are also members of the Risk and Sustainability Committee. Risks are reported to the Committee on a quarterly basis.

Directors consider strategic risks when formulating strategy, approving budgets and monitoring progress against business plans. Executive and divisional management are responsible for the day-to-day management of operational risk and continuously enhancing control procedures. Risk registers are compiled which are regularly reviewed and updated. The key risks on these registers are classified based on severity and probability of the risk materialising. Controls are identified to mitigate the identified risks and prioritise action plans. Registers are presented and discussed at various management levels and forums.

At present, Adcock Ingram faces the following major operational and strategic risks:

COMMERCIAL

    

MANAGEMENT OR CONTROL
Market share
The actions of our competitors may erode our market share and potentially jeopardise our growth.		     Robust sales and marketing efforts, customer relationship management and customer service delivery, assist the Company in combatting competitor actions.
Customer and partner relationships
Customers are the cornerstone of our business. Our customer relationship management has been, and continues to be a key focus area.		     Constant management of the expectations of our business partners is an ongoing focus for our business divisions. The relationship foundations laid down in previous years are continuously nurtured to ensure sustainable business growth.

FINANCIAL

 
Foreign exchange
The uncontrollable currency volatility and the ongoing Rand weakness impacts the purchase price of active pharmaceutical ingredients (APIs), specialised machinery and finished goods sourced internationally, in turn putting margins under pressure.		 Forward cover is taken out for all firm import orders.
Supply and cost pressure
There are a limited number of suppliers of APIs and finished goods, and many of these supplies are sold in a foreign-denominated currency.		 Where available, multiple suppliers of APIs are sourced and stockholding of strategic raw materials or finished goods are maintained.
Economic environment
Economic data indicates very little, if any, growth in the economy resulting in the trading environment remaining difficult and will probably deteriorate.		 The Group trades across many price-points and therapeutic categories.

COMPLIANCE

    

 
Regulatory
The complex and ever-evolving regulatory environment in which the Group operates, provides challenges which are common throughout the pharmaceutical industry.		     Through continuous monitoring, a rigid approach to quality control and assurance, and a prudent business approach, compliance is continuously achieved through the ongoing combined efforts of various operational and technical teams.

SUSTAINABILITY

 
Human capital
Critical skills shortages and the ability to recruit top talent in certain areas of the business, are a reality in the current economic environment. The need to attract and retain top talent, is intensified by our transformation strategy.		 Appropriate incentive schemes, competitive remuneration packages and investment in skills development of employees are used to provide a sustainable pipeline of talent for the future.
Plant mechanisation
Stock levels and order infill rates may be put under strain in the event of a critical plant breakdown.		 A robust maintenance plan, dual site manufacturing as well as mechanisation upgrades mitigate this risk.
Interruptions of resource supply by utility providers
The interruption of supply of water and electricity poses the threat of suspending production and compromising order infill rates.		 Back-up power supplies as well as on-site water storage facilities allow for continuous production during periods of interruption.
Occupational health and safety risks
Occupational injury of employees who are key to the performance of the group.		 Continuous improvement of safety practices in the work place; stringent policies and procedures aligned to best practice; and robust training and awareness programs.
Information technology infrastructure upgrades
Adequacy and effectiveness of IT governance, and integration of IT systems.		 Through the use of best practise project management methodology as well as highly skilled human resources, implementation of new and improved information technology infrastructure is successfully achieved.