Risk financing in a project based environment
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Risk Financing in a Project Based Environment Presented by Jeff Cooper Leighton Contractors Pty. Limited NATIONAL CONFERENCE & EXHIBITION 2014 Platinum Sponsor Silver Sponsor Bronze Sponsor Risk Manager of the Year Award Sponsor Conference and Exhibition Partners
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Presented by Jeff Cooper Leighton Contractors Pty. Limited
Transcript of Risk financing in a project based environment
Risk Financing in a Project Based EnvironmentPresented by Jeff Cooper
Leighton Contractors Pty. Limited
NATIONAL CONFERENCE & EXHIBITION 2014
Platinum Sponsor
Silver
SponsorBronze Sponsor
Risk Manager of the Year
Award Sponsor
Conference and Exhibition Partners
National Conference & Exhibition 2014
What does Leighton do?
Key indicators
Key risks
What do we mean by risk financing
Relationship to ERM
Leighton Contractors Pty Limited. October 2014 ©
National Conference & Exhibition 2014
Use this slide to insert the body of your presentation.
Leighton Contractors Pty Limited. October 2014 ©
What does Leighton do?
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Leighton Holdings Group of Companies is involved in:
Engineering and Infrastructure
Mining and Resources
Buildings and Property
Operations and Maintenance
Source – LHL published HY14 Report (to June 2014)
The Company is transitioning to distinct business models in the
following key areas:
Construction Co
Mining Co
PPP Co
Engineering Co
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 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
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Key Indicators
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
HY2014 LHL Results(millions)
Revenue $11,046.6Profit After Tax $291
Source – LHL published HY14 Report (to June 2014)
Work in hand June 14 HY(million)
Work in Hand $31,123.
Source – LHL published HY14 Report (to June 2014)
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Source – LHL published HY14 Report (to June 2014)
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
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Key Risks
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
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
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
What do we mean by risk financing
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Enterprise
Activities
Division 1 Division 2 Division 3 Division 4
Risks
Consequences
Impact on Enterprise/Balance Sheet
Create
If they are realised they have
Which have the potential to
Simple Enterprise Risk model
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
BondingThe Group has significant bonding and guaranteefacilities available which are integral to the successfuldelivery 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 undrawnof which $0.8 billion was committed and $0.3 billionwas uncommitted.
Source – LHL published HY14 Report (to June 2014)
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
Not just insurance
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
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
What does it all mean
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Insurance bonds/bank guarantees
Our approval gate process
Winning work guidelines
Performing work guidelines
CRA
Risk registers
In-house legal
Internal audit
Risk financing methods (by no means exhaustive)
Education and training
Alliances
Joint Ventures
Resource pooling
Captive/discretionary mutual
HS&E
BCP and BCM
? Any others
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
How do we do it
How do we strive for consistency
LHL gates process - prospect to
delivery
How
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
How is it costed
How do we do it
How do we strive for consistency
LHL gates process - prospect to
delivery
Business standards
How
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
How is it costed
How do we do it
How do we strive for consistency
LHL gates process - prospect to
delivery
Business standards
Similar system for recording risk
How
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
National Conference & Exhibition 2014
How is it costed
How do we do it
How do we strive for consistency
LHL gates process - prospect to
delivery
Business standards
Similar system for recording risk
Training
Accountability
How
Leighton Contractors Pty Limited. October 2014 ©
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
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
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Relationship to ERM
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Enterprise
Activities
Division 1 Division 2 Division 3 Division 4
Risks
Consequences
Impact on Enterprise/Balance Sheet
Create
If they are realised they have
Which have the potential to
Simple Enterprise Risk model
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
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
National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©
Focus people no one else sees a prancing pony
Thank you.
NATIONAL CONFERENCE & EXHIBITION 2014
Platinum Sponsor
Silver
SponsorBronze Sponsor
Risk Manager of the Year
Award Sponsor
Conference and Exhibition Partners
