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Risk Management and Internal Controls
Risk Management Approach
AMG employs a traditional risk management approach,
including a ‘top-down’ and ‘bottom-up’ analysis and assessment
of the Company’s risks. Appropriate and diverse
lines of property and liability insurance coverage are also
an integral part of this risk management program. AMG
has implemented a comprehensive risk management
program centered on the Company’s Risk Assessment
Package (“RAP”). The RAP is a detailed document requiring
each business unit to:
(i) identify potential risks and quantify the impact of
such risks;
(ii) prioritize the risks using a ranking system to determine
the impact, likelihood and suddenness of
occurrence;
(iii) describe the risk mitigation or transfer procedures in
place; and
(iv) document the periodic monitoring of the risks.
Each business unit undertakes a full review of its RAP on
a quarterly basis. The RAPs are then reviewed in detail
by AMG’s Risk Manager in coordination with the operating
managers of the business units. Key risks from all
business units are then summarized and presented to the
Management Board. Individual risks of special note are
discussed at the Management Board’s bi-weekly meeting.
The Management Board has the responsibility to inform
the Supervisory Board of the most significant risk exposures
and the related risk management plans in place.
The Audit Committee of the Supervisory Board carries out
a semi-annual review of the Company’s internal control
and risk management program. As in previous years,
AMG’s Management Board and operating managers of
business units evaluated the Company’s risk management
activities during 2010. As was the case in 2009, the
Company’s Internal Audit Director was in place for the full
calendar year 2010. During 2010, special attention was
given to:
(i) refinancing the credit facility;
(ii) credit facility amendments;
(iii) liquidity management;
(iv) Code of Conduct education, including a training
course in General Antitrust Principles and Practices
for select employees; and
(v) Information Technology improvements.
Risks
Risks faced by AMG can broadly be categorized as:
• Strategic: includes risks related to marketing and sales
strategy, product innovation, technology innovation,
overall raw material sourcing decisions, capacity decisions
and acquisitions
• Operational: includes risks related to executing the
strategic direction, supply of raw materials, production,
maintenance of production equipment, distribution of
products, labor relations, human resources, IT infrastructure,
health, safety and environmental, and sales
and marketing
• Market and External: includes risks related to global
and regional economic conditions, market supply/
demand characteristics, metal prices, product substitution,
customer and competitor actions and community
relations
• Financial: includes risks related to accuracy and
timeliness of financial reporting, compliance with
IFRS accounting standards, compliance with AFM and
Euronext Amsterdam requirements, compliance with
credit facility covenants, currency fluctuations, liquidity,
refinancing, budgeting, metal price and currency hedging,
treasury and tax functions
• Legal and Regulatory: includes risks related to the
political, environmental, legislative, and corporate
governance environment
AMG, like most industrial companies, faces a combination
of risks. The largest risks faced by the Company evolve
throughout each calendar year and cannot be viewed as
static challenges. It is not the intention to detail each risk
posed to AMG in this report, but the most pertinent risks
to the business are described below in no particular order.
Report of the Management Board | Risk Management and Internal Controls 33