INTEGRATED REPORT 2015

Managing risk


The following is a concise overview of the risk management structures and processes of the group.

Further, detailed information regarding the way the group manages risk can be found in the “Governance” section of the WBHO website.

OUR APPROACH

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 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 senvironment 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 Audit and risk committee and the internal audit function to review and report on strategic, operational risks.

RISK MANAGEMENT METHODOLOGY


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Procurement and project risk
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.

Operational risk
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 Audit and risk committee.

Strategic risk
Noting the risks and trends contained within the operational risk assessments, the Audit and risk committee evaluates the risk profile of the group in the context of delivering the strategic objectives of the group. Assessments are made of the broader macro-environment, as well as corporate and compliance risk (both regulatory and legal). These risks are, ultimately, reported to the Board and the overall strategy of the group is reviewed accordingly.

The key risks faced this year and their impact on the group are presented in the “Material Issues” and “Year in review” sections of the report.

ENTERPRISE RISK MANAGEMENT

These strategic risks inform our material issues.


1. Country risk (uncontrollable)

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.

As a result of a stable Rand-Dollar exchange rate and no further downgrades during the year, we have left the overall rating unchanged at possible and major.


2. Shortage of critically skilled staff (controllable)

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. Due to industry-wide downsizing, in response to prevailing conditions, sufficient skills are available in the market and this risk has been downgraded to the operational risk level.


3. Industrial action (uncontrollable)

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.

Although industrial action did not materialise during the year, this risk was adjusted from likely to almost certain when the committee last convened because successful negotiations had yet to be concluded.


4. Political instability (uncontrollable)

The group operates in various countries on the African continent, in an environment where regime changes can be regular and violent, this risk impacts not only on the safety of the group’s employees, but also on the ability of the group to operate.

There was very little political instability experienced across the geographies in which the group operates in the current year, as such this risk was adjusted from likely to possible. The impact remains moderate.


5. Contracting with unreliable parties (controllable)

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: financial, operational and reputational.

Due to the prevailing conditions in the mining sector, the risk of non-payment has increased; hence, the impact of this risk was upgraded from moderate to major and it remains possible.


6. Performance of non-controlled companies    (controllable)

The group has investments in certain companies over which it may not have direct control. The performance of these companies is able to impact the performance of the group significantly.

The process to dispose of non-core businesses and sound performances from the remaining associated companies, has mitigated the likelihood of this risk in the current year. Consequently, this risk was downgraded from likely to unlikely, with the potential impact remaining major.


7. Major safety, health, environmental or quality incident (controllable)

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 committee still believes an incident to be possible, and has left the impact as moderate.


8. Impact of changing market dynamics on growth    (uncontrollable)

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, particularly the subdued mining sector, on the current performance of the group, this risk has been adjusted from unlikely to likely; however, as the group is diversified across various geographies and sectors, the impact has been downgraded from major to moderate.


9. Non-compliance to laws and regulations    (controllable)

The group is subject to numerous laws and regulations in various different 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.

Further consequences of the Competition Commission investigation into the construction industry still exist, including possible sanctions by government. The risk has been rated as possible and major as a result.


   10. Untimely loss of key personnel (controllable)

The 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. Having done so, this risk has been downgraded to an operational risk level.


   11. Community unrest (uncontrollable)

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: financial, operational and reputational.

Due to the prevailing conditions in the mining sector, the risk of non-payment has increased; hence, the impact of this risk was upgraded from moderate to major and it remains possible.


   12. Transformation (partially controllable)

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 rated as possible and the potential impact on the group is considered moderate.