Risks and opportunities
Risk is an inherent part of the activity we conduct. According to our definition, the risk is the impact of uncertainty on the execution of our business objectives resulting in opportunities and threats. The areas generating risk in the KGHM Group are constantly monitored and effectively managed. Consequently, the Group complies with the principles of due diligence in doing business.
From the perspective of a global company, we define risk at the KGHM Group level. The execution of our strategic objectives, including corporate social responsibility, has to take risk into account and how to counteract it. The KGHM Group defines risk as uncertainty, an integral part of the business that may result in opportunities and threats alike to attaining business objectives. We assess the current and future, actual and potential impact of risk on KGHM Group’s activities. Based on this assessment we verify and adapt the management practices as part of our response to individual risks. We identify, assess and analyze on an ongoing basis the risks in different areas of the Group’s operations in the context of the ability to mitigate them. The key risks in the KGHM Group are subject to an in-depth analysis aimed to work out a Risk Response Plan and Adjustment Measures.
The remaining risks are subject to constant monitoring by the Corporate, Compliance and Business Continuity Risk Management Department, and financial risks, by the Director of Finance and Risk Management. Our comprehensive approach to risk analysis also entails identifying the risks associated with pursuing our strategic objectives. In 2017 we carried out a review of the risks associated with our strategic objectives in the Master Strategy and in the Main and Supporting Strategies. Below is the risk management organizational structure in the Parent Company. The division of powers and responsibilities applies the best Corporate Governance practices and the generally recognized three lines of defence model.
| RISK MANAGEMENT ORGANIZATIONAL STRUCTURE IN KGHM POLSKA MIEDŹ S.A. | |||||
 Supervisory Board (Audit Committee) | |||||
| Carries out an annual assessment of the effectiveness of risk management and monitoring of the level of key risks and the methods of addressing them | |||||
 Management Board | |||||
Ultimately responsible for the risk management system and supervision over its individual elements | |||||
| 1st line of defence | 2nd line of defence | 3rd line of defence | |||
| Management The management staff is responsible for the identification, assessment and analysis of the risks and implementation, as part of their daily duties, of the right responses to risk. The management’s task is to exercise ongoing supervision over the application of appropriate responses to risk as part of their tasks to ensure that the risk does not exceed the expected level. | Risk Committee They support effective risk management and ongoing supervision over key risks | Audit The Internal Audit Plan is based on risk assessment and subordinated to the business objectives; an ongoing assessment of the level of individual risks and the effectiveness of risk management is carried out. | |||
| Corporate and Compliance Risk Committee | Market Risk Committee | Credit Risk Committee | Financial Liquidity Committee | ||
| Corporate risk management and ongoing key risk monitoring | Metal price change risk management (among others: copper, silver) and exchange rates and interest rates) | Management of the risk of debtors’ default | Management of the liquidity risk understood as the ability to timely settle the liabilities and raise funds to f nance operations | ||
| Corporate risk management policy | Market risk management policy | Credit risk management policy | Financial liquidity risk management policy | Internal Audit Bylaws | |
| Corporate, Compliance and Business Continuity Risk Management Department | Director of Finance and Risk Management | Internal Audit Department | |||
| Reporting to the President of the Management Board | Reporting to the Vice-President of the Management Board for Financial Matters | Reporting to the President of the Management Board | |||
In the risk identification process, the KGHM Group uses a tool referred to as the Risk Model. Its structure is based on the risk sources and is divided into the following five categories: technological, value chain, market, external and internal. On the basis of the identified and defined categories, there are several tens of subcategories corresponding to individual areas of operations or management
KGHM Polska Miedź S.A.’s strategy
In addition, the KGHM Group has defined the key risks and specified the risks specific to the Parent Company and the KGHM INTERNATIONAL LTD Group. A detailed description of the risks associated with the KGHM Group’s economic environment can be found in the “Management Board Report on the Activity of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group in 2017”, in the chapter entitled “Risk management in the Group”: www.kghm.com/pl/inwestorzy/prezentacje/raporty-finansowe. Each time we look for methods to mitigate or leverage the risks. For key risks, we regularly prepare a Risk Response Plan and Adjustment Measures. The remaining risks are subject to constant monitoring by the Corporate Risk Management and Supervision Standards Division, and financial risks by the Director General on Finance and Risk Management.
Most of the aforementioned risks are the resultant of the macroeconomic situation. The pace of change in the mining sector and the non-ferrous metal industry, as industries featuring market cycles, generates risks which are beyond the Company’s control, but the Company may hedge them and minimize their potential adverse impact by taking the appropriate remedial measures. KGHM Polska Miedź S.A. makes all efforts to mitigate all identified risks. For each execution and supporting strategy, as well as for the Strategy as a whole, the so-called risk maps have been devised, identifying the potential risks for all the areas specified in the Strategy. Having an awareness of the possible risks the company is better prepared and capable of fast response should they materialize.