The Key Risk Register (KRR) identifies those risks that could materially threaten our business model, future performance or prospects, solvency, liquidity or reputation, or which could prevent us from delivering our strategic objectives.
The Board treats such risks as principal risks.
The KRR is the means by which the Group's principal risks are reported to the Audit Committee and the Board for their review. It includes strategic, operational, compliance, financial and people risks, together with external factors over which the Group may have little or no direct control, such as market conditions and worsening political risks in key geographies.
The KRR is reviewed quarterly by the Group Risk Committee, prior to the submission to the Audit Committee, and is designed to:
- Provide the Board and Audit Committee with clarity around our principal risks and uncertainties, ownership, accountability and mitigation strategies
- Promote active engagement, informed debate and constructive challenge
- Keep under review the effectiveness of our decision-making processes
Our principal risks
Our principal risks are:
- Low oil and gas prices impact the capital expenditure plans of our key clients and the demand for our services, limiting our profitability and growth
- Over the longer term, volatility in oil and gas prices could influence and change the industry’s business models and investment trends.
- The financial performance of IES is directly impacted by oil and gas price volatility.
- Significant movements in exchange rates could also impact our financial performance.
Worsening political risks in key geographies
- The risk of exposure to civil or political unrest, civil war, regime change or sanctions that could adversely affect our operations
- The risk of over-concentration in a particular market or geography
Failure to meet projected order intake
- The risk that our clients may cancel or delay planned investments
- The risk that as competition increases, we may fail to maintain differentiated margins
Delivering our strategy
- The risk that shareholders and opinion formers do not believe that our strategy is capable of delivering shareholder value, and therefore that appetite to invest is reduced
- The risk that we are unable to complete our divestment programme as planned
Operational and project performance
- Our portfolio typically includes a relatively small number of very large contracts. The risk is the impact on our financial performance if any of these contracts were to be disrupted or if we fail to execute in line with our expectations
- If we are unable to transfer certain risks to the insurance market (due to the availability or cost of cover, for example), we could be exposed to material uninsured losses
Loss of licence to operate
- Formal investigations by regulatory authorities could result in a loss in share price value, loss in business, increased costs, disruption to the business, and damage to our reputation
- The risk of experiencing a serious environmental, asset integrity or safety incident. The risks is the potential harm to our people – and the commercial and reputational damage that could be caused
- Our performance is increasingly dependent on the capability and reliability of our IT platforms; breach or failure could result in the loss of commercially sensitive data and create substantial business disruption
- Petrofac, like all companies, continues to be exposed to external cyber-security threats
Loss of financial capacity
- Failure to adequately forecast, manage or maintain sufficient liquidity and credit could impact our ability to operate and result in financial loss or inability to comply with our financial covenants
- Debt costs may arise if access to funding is restricted
- Failure to obtain financing could hamper our growth, prevent us from taking on new projects, and adversely affect our financial performance
- The risk of financial or commercial exposure if counterparties (such as key financial institutions, clients, partners, subcontractors or vendors) default on their commitments
Dilution of Company culture and/or capability
- An inability to respond effectively to unplanned changes in our leadership structure could adversely affect the delivery of our strategy and our day-to-day operations
- Failure to attract and retain the right level of skilled and experienced personnel could negatively impact our distinctive culture, and prevent us from maintaining our operational capability and relationships with clients
Compliance and controls
- The management of agency relationships represents one of the largest risks of reputational damage that companies face
- The potential financial and reputational risk that would arise if any of our employees or those who with and for us failed to comply with laws and regulations and/or relevant Group standards, policies and procedures
- There are risks associated with the management of trade sanctions as we develop our business in Russia
More details are available, including our plans for mitigation and management, and our assessment of the risks, in our Principal Risks section of our Annual Report.