Business review
Key risks

The Group’s achievement of its strategy and vision is subject to a number of key risks. Risk management processes are designed to continually assess, identify, understand and challenge the effectiveness of mitigating actions. The Board considers that the most significant risks and the main mitigating actions are:

Market and economic environment		Risks		Impacts		Mitigation
The market sectors in which the Group operates are affected to varying degrees by general macroeconomic conditions and changes in Government spending priorities. The Group is particularly focused at present on managing impacts of the challenging economic conditions and continuing to invest for the long-term to be prepared for opportunities when they arise.		Shortage of opportunities caused by macroeconomic factors Reliance on key customers and sectors and increased competition Projects consuming excessive capital inhibit growth Inability to manage overheads during downturn More onerous financial security such as bonding and other financial guarantees required in current market in order to qualify for work		Loss of revenue, profit effect magnified if overheads not managed appropriately Increased competition leads to falling margin on work Excessive consumption of cash leads to inability to carry out work		Delegated authorities in place throughout the Group require approval of tenders at appropriate levels Refusal to compete solely on price: Perfect Delivery quality programme seeks to differentiate the Group’s offering on service and quality Adequacy of cash resources and facilities available, bonding lines and insurance programme are kept under constant review	Sector spread and diversification offer some protection against decline in individual sectors Regular feedback from clients and others used to tailor the Group’s offering Regular monitoring and reporting of financial performance, work won, prospects and pipeline of opportunities Regular review of resource levels against anticipated workload

Regulatory environment		Risks		Impacts		Mitigation
The Group operates within a constantly changing regulatory environment governed by legislation and industry specific regulation. Non-compliance with legislation or regulations can damage the Group’s reputation, market standing and ability to secure new business and may lead to financial penalties.		Regulatory or legislative breach, failure to understand regulatory environment Failure of employees and subcontractors to comply with legislation		Loss of reputation, market share, cost of investigations, fines and prosecutions		Regular communication of relevant regulation, including changes and amendments; key regulatory risks dealt with in Group policies and induction processes Regular training and updates for those with responsibility for ensuring compliance Regular reporting of significant measures relevant to regulation	Systems of management to identify risks and controls, audits and reviews to ensure that controls are operating effectively Periodic reviews by external professionals and involvement of external experts in training where necessary Whistleblowing and ethical policies and procedures in place

Health, safety and environmental risks		Risks		Impacts		Mitigation
The Group’s health and safety and environmental performance affect employees, subcontractors and the public and, in turn, can affect its reputation and commercial performance.		Environmental or safety incidents caused by the Group’s activities		Harm to individuals and communities, reputational damage, loss of market share, fines and prosecutions		Health and safety and environmental policy frameworks are communicated and senior managers appointed in each division Well established safety systems, site visits, monitoring and reporting (including near miss and potential hazard reporting) in place	Investigation and root cause analysis of accidents and near misses Regular health and safety and environmental training and updates including behavioural training Certification of workforce under Construction Skills Certification Scheme

Developing talent		Risks		Impacts		Mitigation
The ability of the Group to deliver projects successfully to clients, grow in profitability and develop strong, sustained financial performance relies on the quality of its employees. It is critical that talented individuals are attracted, developed and retained.		Failure to attract talented individuals to the construction industry Inadequate succession planning Failure to retain talented individuals		Group and divisions fail to develop the people necessary to provide future growth Talented people see better opportunities for reward and satisfaction in other industries or with competitors		Management development programmes in place alongside formal individual appraisal and development processes Regular review of remuneration levels and competitive bonus structure	Long-term incentivisation through Save As You Earn and share option schemes Succession and staff development is considered in annual and longer-term business planning cycle

Contractual risks		Risks		Impacts		Mitigation
The Group undertakes several hundred contracts each year and it is important that contractual terms reflect risks arising from the nature and complexity of the works and the duration of the contract.		Acceptance of work outside core competences Acceptance of unprofitable work Poor project management leads to delays and cost overruns Inability to agree valuation of additional work and variations		Loss of profitability and reputation Excessive resources and attention devoted to poorly performing projects		System of delegated authorities governs tenders and acceptance of work Work carried out under standard terms wherever possible Well established systems of measuring and reporting project progress and estimated outturns Collation and review of client feedback	Lessons learned exercises carried out on projects Use of accredited subcontractors with established relationships wherever possible Staff incentivised on basis of contract performance Cross regional peer reviews

Acquisitions		Risks		Impacts		Mitigation
The Group regularly identifies and evaluates potential acquisitions and it is important that acquisitions deliver the planned benefits.		Group fails to deliver benefits sought at time of acquisition, through issues with due diligence, execution, strategic assessment, alignment of cultures or other reasons		Loss of profitability and reputation Excessive resources required to be directed towards acquisition		All acquisitions approved at Board level Commercial and financial due diligence led by senior teams including executive directors, with clear roles and responsibilities Post acquisition integration plans prepared and monitored	KPIs established and monitored post acquisition

Counterparty and liquidity risks		Risks		Impacts		Mitigation
The terms on which the Group trades with counterparties affect its liquidity. Without sufficient liquidity, the Group’s ability to meet its liabilities as they fall due would be compromised, which could ultimately lead to its failure to continue as a going concern. Further disclosure on liquidity risks and liquidity risk management is contained in note 29 to the consolidated financial statements.		Insolvency of key client, subcontractor or supplier Inadequate liquidity		Significant financial loss due to bad debt, cost of replacing supplier Reputational impact Group cannot continue in business, or cannot grow as desired, due to lack of funds		Work only carried out for financially sound clients, established through credit checks Work with approved suppliers wherever possible Contracts with clients, subcontractors or suppliers only entered into after review at appropriate level of delegated authority Work carried out under standard terms of contract as far as possible Specific commercial terms, including payment terms; escrow accounts used as appropriate	Regular monitoring of cash levels and forecast cash Regular stress testing of longer-term cash forecasts Regular assessment of the level of banking facilities available to the Group Regular monitoring of banking covenants

Business review Key risks

Business review
Key risks