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AUDIT, COMPLIANCE & RISK MANAGEMENT COMMITTEE REPORT Overall risk landscape For effective management of the Group’s risk exposures, the overall risk position is determined by evaluating likely impact of current and emerging risks materialising with consideration for risk correlations. For instance, a delinquent credit is usually the outcome of process failures which are tracked and monitored using operational risk management tools. The precursor of any risk event crystallising is usually due to the ripple effect of poor management of other risk factors. This is why the Group adopted an effective risk management process that is holistic and takes into consideration all interdependencies that might lead to other risks materialising. Comprehensive risk assessments of all operations across the Group are conducted and the outcomes of these risk assessments are reported to all stakeholders including Heads of Departments, Heads of Business Units or Subsidiaries, Country and Group Executive Committees and the Board Audit, Compliance & Risk Management Committee to ensure remedial actions required are communicated and duly implemented. The Group’s current risk profile is as indicated in the chart below. Exogenous factors constitute 33% and the highest proportion of the Group’s risk exposure because of the huge impact of foreign exchange fluctuations in most jurisdictions of operations and attendant sovereign risk factors on its business activities. Operational risk accounts for 28% of the Group’s current risk profile. This is closely followed by financial risk accounting for 17%, industrial/competitive risk accounting for 12% and strategic risk 10%. For proper monitoring of its risk exposures, the Group estimates ‘Expected Losses’ for all key risks identified (see chart below). Expected Losses are derived from the product of the probabilities of events occurring and the impact thereof using four severely stressed scenarios. These Expected Losses are scenario-based and capture the likely impact of current and anticipated risk trends on the Group’s business objectives in order to ensure that identified risks are properly managed and mitigated within acceptable limits derived from the Group’s risk appetite. 106 Annual Report 2016 This methodology is employed to maintain an optimal risk environment on an ongoing and forward looking basis. Outlook for risk management Dangote Cement will continue with its intentional and entrepreneurial vision for growth, sustainability and value creation. Its risk management strategy will be defined to be fit-for-purpose and realistic to its business model. As a result, all risk management tools and methodologies deployed will ensure appropriateness for holistic, effective and efficient risk management organisation-wide. This approach will ensure that all financial and non-financial threats to the achievement of its strategic intent and business objectives are eliminated or minimised on an ongoing basis. As was done in 2016, increasingly sophisticated and granular methods will be applied in managing DCP’s risk exposures organisation-wide as it grows and expands its business scope. Compliance The Board monitors the Company’s compliance with applicable laws and non-binding rules and standards. The responsibility for this has been delegated to the committee. Dangote Cement recognises that every Company is one bad decision or one ‘bad employee’ away from potential lawsuits and penalties, which brings to the fore the vulnerability of businesses. Corporate compliance, or more accurately the risk of non-compliance, has become a major concern over the past decade, especially for global companies such as ours with operations in many different countries and jurisdictions. When a practice commonly accepted in one country could be a serious criminal or civil offence in another, it is essential that this is understood and managed. The Compliance function is crucial for the timely detection and prediction of compliance violations as well as for the provision of reactive and proactive countermeasures on compliance violations. In recent

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