The Group recognises the importance of identifying and actively managing the financial and non-financial risks facing the business.
We want our people to feel empowered to take advantage of attractive opportunities, yet we want them to do so within the risk appetite set by the Board. It is important that we have in place a robust, repeatable risk management framework to facilitate this.
Risk Management Framework
Identify the risk events or missed opportunities which could have material impact on the ability of Aggreko to meet its business objectives
Prioritise risks based on the impact of the business should they occur and the likelihood of occurrence both before and after consideration of control design and operation. Impact scoring is determined by considering several factors: Financial: HSE; Operational; Reputational and Regulatory.
Assess each risk to determine whether further actions are required to effectively manage the risk to within the Group’s risk appetite. Where necessary, further actions are captured and tracked to completion.
Monitor each risk using relevant KPIs where available and through regular management review of actions identified.
Approach to Managing Risk
Following on from the work completed in 2015 to revise and refresh our approach to risk management, this year we have focused on embedding the improved process.
Our risk management framework delivers an effective and efficient approach to the management of risk, whilst making a positive contribution to effective decision-making and business growth.
The Group’s Register of Principal Risks is the foundation upon which the Group’s risk management process is built. This is compiled based upon registers of principal risks held within our two Business Units and our Central Functions.
A Group Risk function has been established to facilitate the effective and consistent implementation of the risk framework and a Group Risk Committee was established during the year.
The Group’s risk appetite has been reviewed and refreshed by the Group Risk Committee during 2016 and approved by the Board. We continue to monitor management of risk against this appetite and will review our risk appetite annually.
Read more about our approach to managing risk, roles and responsibilities in pages 56 to 65 of our 2016 Annual Report
Assessment of Prospects and Viability
Demand for Aggreko’s services is created by events with the nature of the demand differing by country and therefore we address the market through our two business units, as described above.
The Rental Solutions business is linked to local economies and commodity cycles and varies in size and nature from country to country whilst the Power Solutions business is driven by shortfalls in permanent capacity caused by:
- Ageing power infrastructure
- Social pressures; and
- Economic growth
The factors which could affect Aggreko’s growth are discussed regularly by both the Executive Committee and the Board. The principal risk factors which the Board concluded could affect business performance over the medium term are set out on the following pages, of which there are 12.
With the above as background, the Board approached the viability assessment as follows:
- It took the decision to carry out the assessment over a three year period to 2019. Although the prospects of the Group are considered over a longer period, three years was deemed appropriate because:
- our funding requirement can be forecast with reasonable accuracy over the viability period; and
- our committed borrowing facilities have an average term to maturity that covers the viability period.
- It stress-tested the Group’s strategic plans out to 2019 by modelling scenarios linked to its principal risks.
- In order to reflect the possibility that more than one principal risk might of a combination of principal risks affect the business at one time a combination scenario was also modelled.
The results of this stress-testing showed that, due to the diversity of our business and strength of our balance sheet, the Group would be able to withstand the impact of these scenarios occurring over the period by making adjustments to its operating plans within the normal course of business.
Based on the results of this analysis, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period of their detailed assessment.