Risk Management

Risk assessments are conducted twice a year at Group level, to support interim and year-end financial reporting, annually at an operational level as part of the three-year business planning process, and at project level as part of bid preparation and project implementation. The collective Group experience is shared to better understand and identify potential exposures to threats and opportunities.

Opportunity management relates to decision-making on matters which change the Group’s risk profile:

• Acquisitions are subject to rigorous due diligence before approval
• Capital expenditure requirements for organic growth are assessed as part of business planning
• Engagement of project opportunities is regulated through the opportunity management system (OMS)
• Significant risk decisions are first reviewed by the executive risk committee before submission to the Board.

Risk mitigation promotes proactive management of risk. This involves accountability, planning and resource allocation, ongoing review and communication with affected stakeholders.

Risk-based audit reviews form part of a structured programme to test the integrity of internal controls and systems for significant exposures. Business plan risk mitigations are reviewed for relevance and effectiveness. Audits of selected major projects, systems, controls and processes are performed through an integrated assurance model by management and internal audit, and selectively reviewed by experienced corporate executives and external service providers.

• Group Risk Management Framework
• Strategic Risk

The context within which the Group identifies, assesses and responds to risk and opportunity is described below in terms of its prevailing strategic, corporate, operational and project environments:

	Trend		Risk		Mitigation
			Continued market volatility in developed economies
			Demand for commodities is driven by economic growth in China. This in turn is leading to strong pipeline and order book for Cementation. A slowdown in the Chinese economy could dampen the commodity run. Europe’s stagnation has forced Europe based contractors into new markets, with an increased appetite for risk in Africa and the Middle East.		1. Further diversify in terms of geographies, clients and disciplines. 2. Utilise a “Growth through Acquisition” strategy to accelerate capacity building in strong diversified commodity markets and emerging geographies. 3. Establish a strong position in key areas of Africa that support the beneficial and profitable delivery of new projects. 4. Leverage further the Group’s footprint in the growing oil and gas markets. 5. The Group has adopted and implemented a stringent cost containment and capital preservation programme to strengthen its balance sheet.
			Public sector clients introduce additional risk to delivering infrastructure projects
			The Group has exposure to public sector clients, particularly in South Africa and the Middle East. The public sector has a limited capacity to absorb the cost of scope changes and drawn out dispute resolution processes create pressure on working capital. The public sector also has a limited capacity to meet delivery obligations.		1. Apply key lessons learnt and commercial guidelines to new opportunities, and contract out of risk issues. 2. Understand the public sector’s capacity/or lack thereof to meet its contractual responsibilities prior to concluding agreements. 3. Focus strongly on pricing approach, design completion, implementation planning and change management.
			SA business environment
			Declining business confidence in South Africa, as a result of the political and mining environment, could lead to reduced foreign investment and further constrain opportunities in the local infrastructure and mining markets.		1. Continue to seek growth opportunities in Africa, the Middle East, Australasia and the Americas. 2. Target acquisitions in growth geographies.
			Transformation
			Lack of transformation (Employment Equity) and a low BBBEE rating could reduce Murray & Roberts' chances of being successful with public sectors tenders or incurring client sanction or penalties on current projects if contractual BBBEE obligations are not met.		1. Focus on improving transformation (implementation of Transformation Policy) and BBBEE rating. 2. Growth in international markets will lead to proportionately lower levels of domestic revenue, which will improve the BBBEE rating. 3. Invest in capacity that is scalable into Africa and other growth geographies.
			Construction Products Africa Operating Platform
			The construction products business in South Africa is highly sensitive to local market conditions, and generally is not able to adapt product ranges, or relocate plant to meet changing markets dynamics.		1. Invest in capacity that is scalable into Africa and other growth geographies.
			New growth markets
			Oil and gas is needed to fuel energy demands from global urbanisation. Clough is strategically placed to benefit from the oil and gas outlook and could become a meaningful player and facilitator in the growing Africana gas market, in addition to its traditional Australasian markets.		1. Develop strategies to leverage the Group further into the oil and gas markets.
			Group liquidity
			Losses and severe working capital demands from projects, in particular GPMOF, Dubai International Airport and Gautrain, created significant liquidity stress for the Group.		1. Disposal of a number of non-core businesses has brought in approximately R0.9 billion. 2. Successful debt restructuring has been concluded with the first covenant measurement in December 2012. 3. A heads of agreement has been signed with Eskom on Medupi Civils, averting cash flow pressure. 4. Settlement of claims on GPMOF, Dubai International Airport and Gautrain are in progress.
			Leadership capacity to support growth strategy
			The Growth strategy is placing increasing demands on leadership capacity. The Construction Africa and Middle East platform has performed poorly over the past number of years, and suffered from high staff turnover. With the global scarcity of skilled technical talent, Murray & Roberts risks the loss of key talent, including project managers, contract managers and senior executives.		1. Experienced COOs have been appointed for the Civils and Buildings companies, with new MDs appointed to the Middle East and Marine. 2. Jerome Govender has been appointed to lead the Construction Africa and Middle East platform. 3. A new remuneration policy is being developed to focus on performance and retention of key talent. 4. Performance management and development is receiving appropriate attention. 5. Regular succession reviews are held to identify potential talent retention risks and apply appropriate strategies to individuals.

Key
Colours:	Black – High, Dark grey – Medium, Light grey – Low
Risk trend:	Arrow up – increasing, Arrow down – decreasing, Arrow right – stable
Object:	- Opportunity,  - New risk