Risk financing in a project based environment

NATIONAL CONFERENCE & EXHIBITION 2014
Risk Financing in a Project Based Environment
Presented by Jeff Cooper
Leighton Contractors Pty. Limited
Platinum Sponsor
Silver
Sponsor
Bronze Sponsor
Risk Manager of the Year
Award Sponsor
Conference and Exhibition Partners

 What does Leighton do?
 Key indicators
National Conference & Exhibition 2014
 Key risks
 What do we mean by risk financing
 Relationship to ERM
Leighton Contractors Pty Limited. October 2014 ©

Use this slide to insert the body of your presentation.
What does Leighton do?

Leighton Holdings Group of Companies is involved in:
 Engineering and Infrastructure
 Mining and Resources
 Buildings and Property
 Operations and Maintenance
The Company is transitioning to distinct business models in the
following key areas:
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
 Construction Co
 Mining Co
 PPP Co
 Engineering Co
Source – LHL published HY14 Report (to June 2014)

TOP PROJECTS
 Solomon Project
 Gorgon LNG Civils
 Gorgon LNG Jetty
 Chorus Field
 Sonoma Coal Mine
 Ichthys LNG Project
 Australia LNG
 New Royal Adelaide Hospital
 Australia Pacific LNG
 APLNG Phase 1
 Freight Access

Key Indicators

HY2014 LHL Results
(millions)
Revenue $11,046.6
Profit After Tax $291
Work in hand June 14 HY
(million)
Work in Hand $31,123.

Diversification by geography
At June 2014 WIH split 66:34 domestic
and international
Hong Kong and Macau continue to
contribute a third of the overseas
portfolio;
Work in the Middle East (HLG) has
almost doubled;
Contract Mining makes up majority of
work in hand in Indonesia and Mongolia

Key Risks

Key Risks
 Reputation Risk
 Capital, access and cost
 Workforce planning (FIFO etc.)/Key
personnel
 Government regulatory change
 Political risks (International)
 Business change management
 Project risk
 Logistics (remote sites etc.)
 Balance sheet protection
 Weather
 Liquidated damages (delay)
 Suppliers
 Cyber
 Unrealised risk

What do we mean by
risk financing

Enterprise
Simple Enterprise Risk model
Division 1 Division 2 Division 3 Division 4
Activities
Create
Risks
If they are realised they have
Consequences
Which have the potential to
Impact on Enterprise/Balance Sheet

 Risk financing is not isolated to the cost of insurance and nor should
insurance be seen as a risk treatment on a risk register.
 As you can see many of the key risks would be considered largely
uninsurable or not commercially viable from a premium viewpoint.
 So how do we finance them and what other issues face us e.g., bank
guarantees, bonds, self - insured retentions and fluid workforce and
labour requirements
Bonding
The Group has significant bonding and guarantee
facilities available which are integral to the successful
delivery of current and future work in hand.
Bonds and guarantees in use at 30 June 2014 were
$4.3 billion. An additional $1.1 billion was undrawn
of which $0.8 billion was committed and $0.3 billion
was uncommitted.
Not just insurance

What does it all
mean
Risk financing methods come at a cost to the business and have one aim
in common and that is to mitigate or eliminate risk and therefore cost .
A diligent approach means that we can:
 Take higher self-insured retentions
 Share project risk with a partner
 Manage any contractual legal issues in-house and avoid unnecessary
litigation etc.
This provides a buffer to protect the balance sheet and therefore
shareholders interests

Risk financing methods (by no means exhaustive)
 Insurance bonds/bank guarantees
 Our approval gate process
 Winning work guidelines
 Performing work guidelines
 CRA
 Risk registers
 In-house legal
 Internal audit
 Education and training
 Alliances
 Joint Ventures
 Resource pooling
 Captive/discretionary mutual
 HS&E
 BCP and BCM
 ? Any others

 How do we do it
 How do we strive for consistency
 LHL gates process - prospect to
delivery
How

How
 How is it costed
 How do we do it
delivery
 Business standards

How
 How do we do it
delivery
 Similar system for recording risk

How
 How do we do it
delivery
 Similar system for recording risk
 Training
 Accountability

 A risk financing strategy is not set & forget
 Must be monitored
 Must reflect risk appetite
 Must consider multiple exposure scenarios
 Some risk financing has a secondary purpose, e.g.
Demonstrates we have some “skin” in the game.
Some rules

Relationship to ERM

 Risk appetite /tolerance
 Reflect financial position of the Company
 Consistent approach
 Learnings across the business
Business Risk Consequences Cost = Risk Financing
Sum of the parts
Tolerance Accept or mitigate/remove Cost benefit

Focus people no one else sees a prancing pony

NATIONAL CONFERENCE & EXHIBITION 2014
Thank you.
Platinum Sponsor
Silver
Sponsor
Bronze Sponsor
Risk Manager of the Year
Award Sponsor
Conference and Exhibition Partners

Risk financing in a project based environment

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Risk financing in a project based environment