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

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Page 1: 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

Page 2: Risk financing in a project based environment

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 ©

Page 3: Risk financing in a project based environment

National Conference & Exhibition 2014

Use this slide to insert the body of your presentation.

Leighton Contractors Pty Limited. October 2014 ©

What does Leighton do?

Page 4: Risk financing in a project based environment

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

Page 5: Risk financing in a project based environment

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

Page 6: Risk financing in a project based environment

National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©

Key Indicators

Page 7: Risk financing in a project based environment

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)

Page 8: Risk financing in a project based environment

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

Page 9: Risk financing in a project based environment

National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©

Key Risks

Page 10: Risk financing in a project based environment

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

Page 12: Risk financing in a project based environment

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

Page 13: Risk financing in a project based environment

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

Page 14: Risk financing in a project based environment

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

Page 15: Risk financing in a project based environment

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

Page 16: Risk financing in a project based environment

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

Page 17: Risk financing in a project based environment

National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©

Page 18: Risk financing in a project based environment

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

Page 19: Risk financing in a project based environment

National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©

Page 20: Risk financing in a project based environment

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

Page 21: Risk financing in a project based environment

National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©

Page 22: Risk financing in a project based environment

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 ©

Page 23: Risk financing in a project based environment

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

Page 25: Risk financing in a project based environment

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

Page 26: Risk financing in a project based environment

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

Page 27: Risk financing in a project based environment

National Conference & Exhibition 2014 Leighton Contractors Pty Limited. October 2014 ©

Focus people no one else sees a prancing pony

Page 28: Risk financing in a project based environment

Thank you.

NATIONAL CONFERENCE & EXHIBITION 2014

Platinum Sponsor

Silver

SponsorBronze Sponsor

Risk Manager of the Year

Award Sponsor

Conference and Exhibition Partners