WBHO understands that risk management is an essential element of good corporate governance and an integral part of sound management practice. Risk is inherent in all of the business activities of the group, and the objective of our risk management processes is not to eliminate risk, but to provide the structural means to identify, prioritise and manage this risk. By embedding risk management in company business processes in an explicit, practical way, a formal means for managing the risks associated with our operating environment is created.
The Board is ultimately responsible for risk governance and determines the level of risk tolerance within the organisation. The Board reviews the risk profile of the organisation bi-annually. As part of this process, the Board relies on the Risk committee and the internal audit function to review and report on strategic, operational and project risks.
Operational risks are assessed at a divisional or business unit level. Taking cognisance of the individual operating environments, assessments are made of risks relating to current market dynamics, skills shortages, capacity, talent management and stakeholder relationships (clients, professionals, labour and suppliers). These risks are discussed at a senior management level and suitable strategies are developed to mitigate their impact. Once entered into the risk database, these risks are escalated to the Operational risk committee and, ultimately, the Risk committee.
Targeted projects are evaluated prior to bid submission and authority levels exist to define how tenders are escalated through the management structures of the group for approval. As with active projects, bids are evaluated against time and cost, while further consideration is given to available resources, client assessments, payment risk, margins, country risk and contractual terms outside of the norm.
Major projects are evaluated at least quarterly, as well as at key stages of the project lifecycle. These evaluations take the form of risk and opportunity schedules with focus on the key risks of time, cost, resources, contractual claims and stakeholder relationships. The results of these evaluations are presented at monthly management meetings. These schedules are then entered into the risk database of the group in order to identify trends and common themes across our project universe.
Certain macro-economic conditions, including currency volatility, are beyond our control. Past country and bank downgrades have had an impact on the strength of the rand, which impacts the ability of the group to support certain Australian financial facilities from a rand-based balance sheet.
Increased political instability together with a low-growth environment have increased the risk of further country downgrades and a volatile currency during the year. As a result, we have changed the risk rating to likely while the impact remains major.
Construction requires various specialist skills in order to deliver projects successfully. Accordingly, ensuring that we retain the depth of skills required is a key strategic consideration.
Downgraded to the operational risk level in FY15.
The South African labour market is characterised by regular industrial action across multiple industries and unions are strong and active in Australia as well. Strike action impacts on productivity and delivery.
Following the conclusion of successful wage negotiations this year, which are effective until September 2017, this risk has been adjusted from almost certain to unlikely.
Political instability can have a major impact on the economy of a country, affecting investor confidence, foreign direct investment and currency volatility.
The group also operates in various countries on the African continent, in an environment where regime changes can be regular and violent. This risk impacts not only the safety of the group’s employees, but also the ability of the group to operate.
While there was very little political instability experienced across the geographies in the rest of Africa in the current year, the turmoil within the local political landscape and clear evidence of its impact on the economy resulted in the risk remaining unchanged as possible and moderate.
The group regularly contracts with new suppliers and clients. Due to the value and size of contracts, failure by the contracting parties can have severe implications, such as financial, operational and reputational.
Due to the prevailing conditions in the mining sector and the risk of non-payment, the impact of this risk was left unchanged at major and possible.
The group has investments in certain companies over which it may not have direct control. The performance of these companies can impact the performance of the group significantly.
The process of disposing of non-core businesses was essentially completed during the year which, when combined with the remaining associated companies performing satisfactorily, resulted in this risk being left as unlikely, with the potential impact reducing to moderate.
Construction is inherently a high- impact and dangerous industry. Any major incident, while a tragedy in its own right, also has implications for the reputation and ability of the group to procure work in certain sectors.
The group implements globally accredited quality, safety and environmental best practices across all of its operations, together with various ongoing prevention initiatives. Due to the many inherent variables, the Board still believes an incident to be possible and has left the impact as moderate.
The group conducts operations in a number of differing sectors, geographies and economies, each affected by dynamics beyond the control of the group. A material deterioration in one or more of the markets would have a severe impact on the size and nature of the group.
Due to the impact of the prevailing conditions in civil markets on the current performance of the group, particularly the subdued mining sector, this risk has been left unchanged as likely, as the group is diversified across various geographies and sectors, the impact has also been left as moderate.
The group is subject to numerous laws and regulations in various territories. Non-compliance has significant reputational risk attached to it, the potential for fines and penalties, and the possibility of losing the necessary licences or accreditations needed to procure work.
The receipt of civil damages claims from the South African National Roads Agency during the year and the potential for further claims as a result of the Competition Commission investigation into the construction industry resulted in this risk being left unchanged as possible and major.
TThe untimely loss of key black management remains a strategic risk but will be dealt with as part of the group’s overall transformation risk in the future. The group, through its ongoing succession planning, has successfully navigated a number of changes in key leadership positions over recent years.
Downgraded to the operational risk level in FY15.
On projects near local communities, the group employs as much labour from the community as is realistic; however, often this does not meet the expectations of community leaders. Conflict also arises in respect of transport-related infrastructure where new routes impact existing service providers.
Poor service delivery and high levels of poverty and unemployment have resulted in numerous community- related disruptions and taxi violence on various projects during the year. While the impact of these disturbances is currently mitigated contractually, a number of significant project delays were incurred on certain road contracts and the risk has now been upgraded to minor as a result and it remains almost certain.
Transformation is a key challenge in South Africa. The construction industry benefits from significant public spending and, as a result, transformation within the sector remains high on the political agenda of the government.
In the current year, the amendments to the Construction Sector Scorecard requirements and the focus of the Department of Labour on our employment equity plan have elevated this risk from an operational to a strategic level. At the moment, the likelihood of this risk has been upgraded from possible to likely and the potential impact on the group is considered moderate.