Italcementi ERMLa Integration presenza with su Business processes: the Importance of RiskYouTube Quantification www.italcementigroup.com Italcementi Group Index 1 – Our World 2 – Governance and Organization 3 – ERM Italcementi – main processes 4 – Risk Quantification 5 – Conclusions Italcementi Group Italcementi Group at a glance The world’s fifth largest cement producer A worldwide presence in 22 countries An overall staff of 19,000 people A consolidated production capacity of approximately 68 million tons 2012 annual sales amounting to 4.5 billion Euro The first cement company to be listed on the Italian Stock Exchange Over 145 years-old successful business strategy implemented by a family-driven company Italcementi Group 3 Our core industry Italcementi Group is focused on three main product lines: cement, aggregates and concrete. The Group aims to optimize production across all of our markets, providing a complete solution for customers needs at the lowest possible cost, strategically integrating its activities. Cement is made from a mixture of 80% limestone and 20% clay. These are crushed and ground to provide the "raw meal”, a pale, flour-like powder. Heated to around 1450° C (2642° F) in rotating kilns, the “meal” undergoes complex chemical changes and is transformed into clinker. Fine-grinding the clinker together with a small quantity of gypsum produces cement. Adding other constituents at this stage produces cements for specialized uses. Aggregates are made from sand and gravel extracted from quarries. Around 60 % of aggregates are used in road construction. The remainder is used to produce concrete. Concrete is a mixture of cement, aggregates, water, admixtures and additions based on formulas that conform to predetermined strict technical specifications. Concrete is either mixed on the building site or delivered "ready-mixed" by specialized suppliers. Italcementi Group 4 Italcementi Group structure Italmobiliare S.p.A. Milan 60.36% ordinary shares Italcementi S.p.A. Bergamo 83.16% shares Ciments Français S.A. Paris as of 31 December 2012 Italcementi Group 5 Italcementi Group in the world… NORTH AMERICA SYRIA * CHINA * BULGARIA SPAIN KAZAKHSTAN MOROCCO KUWAIT INDIA MAURITANIA THAILAND GAMBIA FRANCE SRI LANKA EGYPT BELGIUM GREECE ITALY SAUDI ARABIA CYPRUS * ALBANIA * Group’s presence in the Board of Directors of local companies Italcementi Group 6 Index 1 – Our World 2 – Governance and Organization 3 – ERM Italcementi – main processes 4 – Risk Quantification 5 – Conclusions Italcementi Group 1 - “From project to process”: Italcementi has decided in 2008 to gradually implement an ERM Programme intended as… ERM Process 1. Identify, measure, … a continuous prioritize and analyse 2. business risks Assess current “management process”, RM capabilities Strategic as opposed to a “one time” 5. 3. Aggregate & Business exercise, aiming at mitigating results and Goals Identify risk integrate with response, design decision-making new capabilities processes and develop risks whilst increasing Action Plans 4. enterprise value Establish, monitor and report key metrics & performance indicators 2 - At the beginning of 2010, the ERM project has become a “structured process” with the establishment of a new ERM department and the appointment of a new Chief Risk Officer. Italcementi Group 8 Italcementi ERM organizational structure Internal Board of Oversight & supervisory role Control Directors Committee Internal Audit Assurance role Department Guidance & decision making CEO role Chief Risk Officer Facilitation, coordination and ERM Department Staff monitoring role (2 people) COO Primary Risk Owners (Corporate Departments) Country Focal Points CTG Corporate Focal Point ZONE 1 Country Focal Point Identification, CountryCountry FocalFocal PointPoint Assessment & SDD Corporate Focal Point ZONE 2 Country Focal Point Management CountryCountry FocalFocal PointPoint role ZONE 3 Country Focal Point PROCUREMENT Corporate Focal Point CountryCountry FocalFocal PointPoint … Country Focal Point … Corporate Focal Point CountryCountry FocalFocal PointPoint Italcementi Group 9 CRO mission and responsibilities MISSION: to provide oversight for the management of key risks throughout the Group, ensuring all key risks, associated with both new and existing businesses, are properly identified, assessed, measured and managed across the Group in accordance with Italcementi Group’s values, policies, guidelines and procedures. MAIN RESPONSIBILITIES: Defining and updating the appropriate ERM Governance : process, roles, responsibilities and accountabilities for key risks . Supporting the Italcementi Corporate Functions and the Subsidiaries in integrating risk within strategic planning and business processes. Ensuring risk management awareness and process effectiveness with the development of an ERM community whose members operate at Corporate and Country level. Implementing and continuously improving methods and tools consistent process across the Italcementi Group to identify, assess, source and measure key risks in cooperation with the involved Primary Risk Owners and the relevant Focal Points. Deploying appropriate risk reporting to the Top Management and to the Board. Ensure regular follow up of the Mitigation action plans for all the Country Risks. Contribute to spread ERM tools and methodologies such as Risk Assessment and Risk Quantification. Italcementi Group 10 Defining a clear governance framework and a community to ensure consistency and coordination on Risk Management activities at Country & Corporate level Corporate Primary Risk Owner Country General Manager • Provide insights for identification of major ITC risks • Identify, measure and assess risks at Country level • Define Group Risk Management Guidelines and • Implement Risk Mitigation Action Plans in their coordinate Risk Mitigation Action Plans at Business Unit Group level for their own risks CRO • Facilitation • Coordination • Monitoring Corporate Focal Point Country Focal Point • Competence Centre • Support Corporate Primary Risk Owner in executing his responsibilities • Support Country General Manager and Line • Provide technical expertise to CRO and Countries Managers in executing their ERM activities • Is the CRO’s interface for all ERM activities at Corporate level (risk measurement and • Is the CRO’s interface for all ERM activities at assessment, risk response analysis, risk reporting..) Country level Italcementi Group 11 Index 1 – Our World 2 – Governance and Organization 3 – ERM Italcementi– main processes 4 – Risk Quantification 5 – Conclusions Italcementi Group ERM Processes – 5 main pillars 1) RiskGovernance ERM Guidelines (for each Risk Scenario) implemented and periodically reviewed with the support of Primary Risk Owners Implementation of Risk Management Action Plans 2010 – 2013 (at Corporate and Country level) 2) Country Risk Assessment Risk Identification, Assessment, Quantification and Mitigation at Corporate and Country level are: embedded in annual Budget and Outlook processes updated during Country annual visit or each time there is a significant event 3) Risk Report & Monitoring The Report is updated twice a year (January & June) and addressed to: - Internal Control Committee & Statutory Board: focus on risks and opportunities relevant at Group level. - Top Management: focus on risks and opportunities relevant at Corporate & Zone/Country level. - Country Managers: focus on risks and opportunities relevant at Country level. 4) Big Investments Risk Analysis To set and quantify major risks affecting the investment profitability in order to provide management with considerations on the investment expected NPV and related volatility, improving the decision-making process 5) Risk Assessment “on demand” for special initiatives and projects. Italcementi Group 13 Index 1 – Our World 2 – Governance and Organization 3 – ERM Italcementi– main processes 4 – Risk Quantification 5 – Conclusions Italcementi Group Italcementi Risk Quantification – Monte Carlo Model The Risk Quantification has the aim to: - harness information about uncertainties; - enable debate about sensitivities and vulnerabilities; - reinforce big investments’ NPV analysis, Strategic Plan and Budget consistency; - evaluate the GOP or Cash Flow distribution profile. • “Risks and Opportunities” identification and measurement are performed by local Management on the basis of the budget hypothesis, focusing on risks with impact on the GOP • Each Country is requested to identify significant risk events and provide a risk/opportunity scenario analysis measuring: - Probability of occurrence of each risk event. - Estimated impacts of “Worst” and “Best” cases as well as Basic Hypothesis of the Budget. - Reliability of the “Best/Worst Case” interval provided, in case risk event will occur. Italcementi Group 15 GOP distribution - Group Recurring GOP@risk distribution Outlook GOP = xxx M€ Expected GOP@Risk 2013 = xxx M€ zzz xxx xxx yyy Italcementi Group 16 Risk Exposure – Expected Recurring GOP distribution Emerging Countries Mature Countries GOP Outlook 2+10 Expected GOP GOP Outlook 2+10 Expected GOP Transversal Risks Contribution Expected Price Market / Volume Production / Business Customer Fuel / Power cost Claims / Others Impact Maintenance Interruption Credit Litigations Italcementi Group 17 Group Risk Exposure – Expected impact on Outlook Group GOP XXX (xx) (xx) (xx) (xx) (xx) (xx) (xx) (xx) (xx) (xx) YYY OUTLOOK EGYPT INDIA THAILAND KAZAKHSTAN TERMINALS KUWAIT BULGARIA EXPECTED Group GOP GOP ITALY FRANCE/