Effective risk management is critical to the achievement of our strategic objectives. Controls are integrated into all levels of our business. As a board we continually assess our exposure to risk and seek to ensure that risks are mitigated wherever possible.
Identified principal risks to the achievement of our strategic business objectives are outlined in the section below, together with their potential impact and the mitigation measures in place. The Board believe these risks to be the most significant with the potential to impact our strategy, our financial and operational performance and ultimately, our reputation. There may be other risks which are currently unknown to the group or which may become material in the future.
Our key risk categories are: strategic, financial and operational.
Strategic Risk and Description
Work Winning and Contract Delivery
Central to achieving our strategy is the work winning and successful delivery of our contract portfolio. Our strong financial position relies on our ability to successfully bid, mobilise, operate and manage such contracts. We see our increasingly broad service as a business differentiator to our clients coupled with ensuring consistent service delivery. Winning new and retaining existing contracts of this nature continues to be critical for the future success of our business.
Our bid, mobilisation and contract management processes operate under strict delegated authorises and are subject to rigorous executive management oversight and approval. These contracts are supported by teams of experienced bid, mobilisation and operational delivery specialists to mitigate the risk of failure at any stage. On-going contract assurance occurs together with regular dialogue to ensure service delivery is consistent with the customer expectations and contract KPI’s are adhered to. Through these activities we aim to develop long term customer relationships, supported by a strengthened framework to retain our existing customer base.
Market and Regulatory Conditions
The UK market remains our only economic exposure. We anticipate a continued improvement in the pipeline of new opportunities and so our business model needs to adapt and grow with any on-going economic upturn. Our ability to recognise and respond to variations in the volume, value and range of services required may impact the Group’s ability to win or retain significant business opportunities. As a major employer, further development of the regulatory and legal framework in areas where we work may have a material financial and reputational impact on the business.
We continue to be focused on the delivery of sustainable, profitable growth during the year. We continue to strategically target growth areas with good margins, underpinned by a robust business infrastructure. Resilience is provided by our diverse offering and the level of mandatory and nondiscretionary work we undertake. We have continued to develop our group infrastructure to ensure identification of legal and regulatory requirements. Our operational teams remain primarily responsible for ensuring legal compliance, supported by the Group team which contains SHEQ and HR/legal specialists. Where required we obtain specialist technical advice to support our in-house team. We continue to proactively monitor the developing regulatory framework to plan and budget for ongoing compliance.
Maintaining a strong reputation is vital to our success as a business. A loss in market confidence in our ability to maintain current business or undertake new client opportunities may be caused by an adverse impact to our reputation which may, in turn significantly affect our financial performance and growth prospects. Significant impact to our reputation could be caused by an incident involving major harm to one of our people or clients/partners, corrupt practices involving fraud or bribery, inadequate financial control processes or failure to comply with regulatory requirements. Impact of this type would potentially result in financial penalties, losses of key contracts, an inability to win new business and challenges in retaining key staff and recruiting new staff.
Strong corporate governance and dedicated senior management remain the key elements of effective reputational management. Senior management provide a model of best practice and guidance to ensure our values and expected behaviours are clear and understood by everyone. As our business continues to grow and develop we will remain strongly focused on protecting the strength of our reputation through effective governance, leadership, and through cultivating open and transparent relationships with all stakeholders.
Financial Risks and Description
Access to Funding to Grow the Business and Cash Generation
Our financial strength makes us an attractive partner to our customers and suppliers. Our ability to grow our business organically and by acquisition will be impacted if our financial performance deteriorates, by weakening profitability and therefore limiting our ability to access diverse sources of funding on competitive terms. This may cause and increase in the cost of borrowing or cash flow issues which could, in turn, further affect our financial performance. As a people business, our staff costs remain our most significant area of expenditure. Our ability to pay our people and suppliers regularly and at specific times relies not only on funding being available but also upon effective cash conversion.
We have developed and continue to enhance financial control procedures to oversee and monitor financial performance and cash conversion including daily monitoring of bank balances, weekly cash flow reporting and regular financial performance and balance sheet reviews, which include detailed working capital reviews and forecasts. We believe we have strong banking, debt finance and equity relationships and appropriate levels of gearing for our business.
Reliance on Material Counterparties
We depend on a number of significant counterparties such as insurers, banks, clients and suppliers to maintain our business activities. The failure of a key business partner, supplier, subcontractor, financer or other provider could materially affect the operational and financial effectiveness of our business and our ability to trade. Ensuring on-going relationships with our material counterparties will underpin the Group’s ability to meet its strategic objectives. We have developed a pool of suppliers and providers to ensure we are limited on the dependency of any one provider and hence the impact of any potential failure. The Board reviews and monitors material counterparty risk at divisional and business level and ensures that concentration levels are kept to a minimum.
Operational Risks and Description
Significant Health, Safety or Environmental Incident
Due to our diverse operational portfolio, the potential to cause significant harm to our employees, our business partners, members of the public, or to damage the environment will always exist. We are committed to safeguarding our people and protecting the environment wherever we operate. Failure to maintain our high standards could result in a significant incident arising.
The Board, through effective governance and management maintains it commitment to the highest standards of safety, health, environment and quality (SHEQ) performance. Our SHEQ director reports to the Board. Our performance is achieved through SHEQ management systems and employee engagement. Our well established management systems are certified to the ISO 9001 standard, we have recently enhanced our training programmes to ensure every employee has the core competencies required to do their work safely.
System, Process or Control Failure May Impact Our Operational Performance
Robust business systems and processes underpin our operations. Such systems form the basis for our contract management and business support activities and we foresee increasing future reliance on such capability. These systems, in conjunction with our governance framework of policies and procedures, will help or drive innovation in customer requirements, improve our operational efficiency and provide the foundation of our administrative functions. As such they remain critical for the control and success of the business and the achievement of our strategic aims. Operational failure may result in a significant impact on operational delivery, contract management and client expectations due to the business critical nature of these systems. System failure could also result in a breakdown in the controls around high volume transactions. Financial or other misstatements, fines through statutory non-compliance issues and loss of client and/or regulator confidence could occur as a result.
The basis of our governance framework is provided by our core policies, which are subject to continual review and enhancement to manage our growing and diversifying business requirements in line with sound governance practice. Our internal control procedures continue to be reviewed formally and we are in the process of introducing interdependent operational and finance systems to achieve operational efficiencies and transparent reporting. IT related governance oversight is provided at an entity and group level and we continue to develop the IT infrastructure available to the Group to create a robust platform for operations central to the customer service delivery and supplier reporting process to be undertaken by operatives, the administrative teams and senior management
Attracting and Retaining Skilled People
Attracting and retaining the best skilled people at all levels of the business is critical. This is particularly the case in ensuring we have access to a diverse range of views and experience and in attracting specific expertise at both managerial and operational levels where the market may be highly competitive. Failure to attract new talent, or to develop and retain our existing employees, could impact our ability to achieve our strategic growth objectives. As we continue to grow and diversify into new areas, this risk will continue to be a focus for the Board.
The growth we have already generated has naturally created a pipeline of opportunities for staff at every level of the business. This will continue to be the case as the Group develops. Additionally, to ensure a talent pool is identified, developed and ready for succession if needed, a succession plan exist for key management. Our focus on training and competency at all levels of the business from apprentices to senior management continues to ensure that we develop our people and enable them to successfully manage the changing profile of our business. Incentive programmes are also in place to ensure that key individuals are retained.