Afrox on risk: thriving in uncertain times in Africa
Risk management is a key imperative for businesses to remain robust and sustainable in today’s volatile and competitive economic environment, says African Oxygen Limited (Afrox) Managing Director, Schalk Venter.
Identifying and managing risk
"Companies that used to rely solely on forecasts and projections have learned to respond in a far more agile way to market changes; now, they have the added focus to proactively manage risk to succeed.
One of the main threats to businesses today is unidentified risk.
"The need to focus on identifying, understanding and managing risks before they impact the business has become a core management responsibility,” says Venter.
Venter leads a business in the toughest of environments – the volatile and unstable emerging markets of Africa.
This year Afrox celebrates 92 years in business, operating in eight African countries and employing more than 2,000 staff.
- 92 Years in business
- 8 African countries operated in
- 2,000 Staff employed
The company manages five more African operations on behalf of its parent, Linde plc; a global player with 80,000 employees in over 100 countries, all working together for a business close to US$30bn in revenue and US$90bn in market capitalisation.
Afrox’s customer portfolio is a litmus of South Africa’s business and economic health. The company supplies heavy and light industry, steel producers, mining, fabrication, construction, automotive, agriculture, healthcare and hospitality, to name a few markets.
Growing the business
JSE-listed Afrox is operationally strong, structurally sound and well positioned to manage risk and confidently seize the opportunities as they arise.
“Risk and the management of risk is no stranger to us.”
“Afrox has successfully managed risk as part of good business and governance for decades in an environment that is beset with constant ups and downs, be it on the economic or political front.”
In 2015/16, Afrox successfully underwent a total restructure to align operating costs and risks with the economic realities of continued low growth in its power zone of South Africa.
"Executive management decided a natural and prudent progression to growing our business would be to engage a fresh set of eyes, with new and innovative ideas around the very real risks our industry and markets face today."
Turner & Townsend brought the fresh perspective we were looking for.
Risk awareness and mitigation
The ability to recognise and manage risk enables leaders to act decisively regarding critical business decisions.
Objective assessment of the level and nature of risks facing a business provides a high level of confidence for leaders to deal with risk effectively.
“This is where Turner & Townsend has added significant value for Afrox,” says Venter.
Through implementation of an effective risk management process, we can now identify and assess potential problems before they occur so that mitigation activities can be planned and implemented.
Afrox’s risk awareness has steadily matured, reflecting management’s commitment to evolving risk management. Risk awareness is not just “another initiative”; it is embedded in the day-to-day management of operations, says Venter.
“But transforming the culture to a risk-aware culture requires continuous engagement and close interaction between the Turner & Townsend team and the various Afrox sites and divisions in order to understand the risks we face on a daily basis,” says Venter.
Developing operational strategies
Companies can better understand the true risk underlying their exposure when developing their operational strategies via risk intelligence management and the integration of the risk management perspectives throughout the business. This ultimately leads to quality decisions, sustainable solutions and value for all stakeholders, says Afrox’s Managing Director.
Today, businesses face constantly changing risks including security of supply, institutional bad debt, regulatory risk, increasing competition, potential reputational damage, business interruption, commodity and price risk, cash flow and liquidity risks, industrial action and political risk.
While external risks may not be within management’s direct control, the ability to understand them, mitigate and react quickly is.
Without this ability a business cannot possibly define its objectives for the future with any certainty. In turn, if a management team sets objectives without taking the risks into consideration, chances are the leadership will be blindsided, and lose control and direction when these risks materialise, says Venter.
Building organisational resilience
He adds: “Afrox undertook a business continuity management (BCM) project for our disaster recovery processes. This enables us to build organisational resilience by proactively identifying and planning to minimise the impact of risks that could affect our objectives, operations and infrastructure."
The BCM process, developed with Turner & Townsend, provides Afrox the capability to ensure continuity of operations and activities following any disruptive event.
As a leading business, Afrox understands the social, economic and governance environment has deteriorated, and the decline is likely to continue. “We believe that in such uncertain times risk activism is critical for success, and leading and guiding the business and ensuring risk management is an integrated part of our strategic and operational thinking and implementation,” confirms Venter.
To ensure ongoing robustness of BCM, the team tests the effectiveness of Afrox’s risk management and then reports to the Executive, Audit Committee and the board. “BCM is a reactive process in the risk management cycle and outlines the actions to take in a crisis to protect life, property and to contain the event,” says Venter.
“Afrox’s BCM framework is essential in fortifying the critical business process. The framework informs the response to, and recovery from, disruptive incidents.
We have incorporated material risks that could seriously impact the execution of the company’s strategy, and its value creation goals, into the decision-making process. Risks are then elevated to the appropriate decision-makers and ultimately to the board when they require strategic action.”
In 2018, Afrox rolled out a full BCM programme across South Africa, developing and testing 28 Business Continuity Plans, including digital and cyber security, within its business units and sites.
“Across the board Afrox is now a fit-for-purpose, sustainable business, and shareholder expectations as to our ongoing performance is at its highest for nearly a decade.”