Consti Plc’s risk management procedures and internal control are based on the Finnish Limited Liabilities Companies Act, Articles of Association and the Company’s internal plan. Consti´s Board of Directors has confirmed the Company´s risk management principles, the duties and responsibilities and the guidelines for the risk management and internal auditing administration.
RISK MANAGEMENT PRINCIPLES
The central principle of Consti’s risk management is continuous, systematic and pre-emptive action to identify risks, define the level of risk the Company accepts, evaluate and handle risks and, in the event of risk realisation, see to their effective management and administration so that the company will meet its strategic and financial goals. Risk management is a part of the Company’s management, monitoring and reporting systems. Risk management includes risk identification, evaluation and risk contingency planning.
Consti’s strategic and operative goals are used as a basis for identifying risks. Risk analysis and evaluations are conducted as self-assessments. The probability of a risk materialising and the impact this would have is evaluated on a scale of 1-3 as defined in the Company’s risk principles.
RISK MANAGEMENT RESPONSIBILITIES AND ORGANISING
Consti’s Board of Directors duty is to confirm the Company’s risk management principles and evaluate the adequacy and appropriateness of risk management. The CEO is responsible for the Company’s risk management and its organisation, allocating resources for the work and reviewing the risk management principles. The Group’s Management Team is responsible for the actualisation of risk management, operative risk monitoring and risk related actions.
Financial and operational risks, as well as actions taken, are regularly reported to the Management Team. Strategic risks are handled annually together with the strategy. Risk reports are assessed by the Board, the Management Team and in the business areas’ own management teams.
Central risks and risk management actions are reported yearly in the annual report and interim reports.
CENTRAL RISKS
Consti divides risks to the Company’s business into four categories: strategic and operative risks, as well as financing risks and risks of injury or damage.
Strategic risks
Risks relating to defining the strategy and its implementation
The main goal of Consti’s strategy is to utilise the full potential of its customer focused organisation structure. Consti aspires to achieve controlled and profitable growth in attractive renovation and building technology segments. In order to answer more comprehensively to customer needs the company will also offer selected new construction services. Consti's strategy is based on both organic growth and acquisitions. Risks related to acquisitions will be managed with careful preparation of deals and the monitoring of integration.
Market risks
Renovation construction, which Consti is focused on is less vulnerable to economic changes than other areas of the construction industry. Market risks are controlled by actively following the market and adjusting operations as need be. To level out changes in demand sub-contracting can be used, as well as equipment and machinery leasing and fixed term employment in seasonal work.
Reputation risks
Consti attempts to ensure that its services are first rate in quality and that it fulfils all regulatory requirements set for the company and its business. Consti strives in all of its actions to ward off all black market activity. Consti uses a great deal of its own employees in its operations, which makes it easiest to ensure all laws and regulations are adhered to.
Abiding by the Act on Contractor’s Obligations and Liability when Work is Contracted Out makes sure of the lawful actions of all subcontractors. Consti’s actions related to sustainability risks, such as environmental risks, occupational safety risks and shadow economy are explained in more detail in the in the Sustainability Report section of the Board of Directors’ Report.
Consti Korjausrakentaminen Oy and Consti Talotekniikka Oy has the Construction Quality Association’s (Rakentamisen Laatu ry) RALA Certificate of Competence, Certificate of Quality, Environmental Certificate, and Safety Certificate.
Operational risks
Personnel risks
Consti’s success depends to a large extent on how well it is able to acquire, motivate and retain professional personnel and upkeep its employees' competence.
Personnel turnover risk will be kept at minimum with for example continuous training and by supporting voluntary training. To maintain working ability Consti offers its personnel a much broader health care scheme than what is required by law. The Group has a bonus scheme that includes all white collar workers.
Personnel risks also include possible human errors and misconducts. These risks are managed with careful recruiting, orientation, work supervision and with ethical guidelines created for supervisors.
According to the Act on Contractor’s Obligations and Liability, Consti ensures that subcontractors abide to their legal obligations.
Personnel risks are described in more detail in the Sustainability Report section of the Board of Directors’ Report.
Risks relating to subcontractors and suppliers
Consti uses subcontractors especially for tasks requiring specific competence in demanding work stages and as project based workers to level out seasonal demand variation. Subcontractor risks are managed with meticulously made contracts and long term partnerships.
Supplier risks are managed with carefully drawn contracts and regular assessments of the suppliers’ financial position.
Risks relating to customers and contract work
The Company has a wide customer base that consists of housing corporations, municipalities and other public-sector operators, real estate investors as well as corporations and industrial players. The broad customer base decreases risks related to individual projects and the market environment.
A substantial part of Consti’s business comes from tendered projects and services. The Company and its business areas have procedures that determine which tenders the Company participates in and what the decision making processes regarding these projects are. In biddings the internal tender calculation and decision making authorities are central issues for which Consti has jointly agreed upon procedures.
The Company also has common methods and procedures for project management and monitoring.
Risks relating to legislation and legal claims
Changes in building, environmental protection, workforce and work safety legislation as well as taxation and financial reporting all have an impact on Consti’s operating possibilities. The Company follows and assesses changes in legislation and regulations set by authorities.
Risks relating to legal proceedings are managed with meticulous contract preparation and monitoring, the highest possible work quality, and liability insurance.
Risks relating to injuries or damage
Risk of injuries
Consti follows all applicable regulations that aim at protecting the employees; and work safety is emphasized in all operation. Work safety issues are a central part of Consti’s orientation procedures.
At work sites safety management starts with a site-specific risk analysis. Actions are depicted both in a separate safety plan and also as a part of the plans made for production and work phases. Separate plans are made for critical work phases. A general safety overview is conducted each week at work sites in safety measurements, where any deficiencies are immediately corrected.
Consti has models for managing moisture and dust. Work site cleanliness and dust-levels are monitored weekly in the work site safety measurements.
The Groups’ Management Team monitors numeric data related to safety issues, such as frequency of work site injuries, and also monitors the outcomes of the weekly work site safety measurements on a monthly basis. Also so called close-call situations are followed.
Environmental risks
The most substantial environmental risks come from the possibility of environmentally harmful substances which can be produced for example when processing deconstruction waste, or caused by neglects in end-storage, in addition to which operations can cause noise, construction dust and tremor to nearby surroundings. Consti develops the required environmental plans for work sites, which identify and attempt to control all environmental risks on-site or prepare for the prevention of harmful effects.
Consti abides by legislation, regulation, permit procedures and authority regulations regarding construction, the materials used in building, storage, recycling, waste disposal and other environmental issues. Waste disposal is documented by collecting all consignment notes and documents from the entire supply chain.
ICT-risks
ICT risk are assessed and managed in cooperation between the Group’s ICT function and business areas and together with partners. The Group has rules and procedures to decrease and manage risks related to ICT and information security.
Financial risks
Consti Group is affected in all of its operations by interest rate, credit and liquidity risks.
The Group’s risks related to market rate fluctuations are due largely to the Group’s long-term variable interest rate loans. Consti monitors the sensitivity of its loans to changes in interest rates and the effect such changes would have on the Group’s results prior to taxes.
Consti’s credit risk is related to customers who have unpaid invoices or with whom Consti has long-term contracts as well as counterparties to cash and cash equivalents and derivative agreements.
Credit risks related to deposits are governed according to the Group’s risk management principles by the Group’s financial administration department. Credit risks are managed with for example advance payments, front-loading payment schedules for projects and performing background checks on customers.
The Group strives to ensure the availability and flexibility of financing with sufficient credit limit reserves and sufficiently long loan periods. The Group’s working capital management makes every effort to ensure that it abides to covenants included in interest bearing loans, which in turn determine the capital structure provisions.
There is a risk that revenue and results of operations from long-term contracts recognised using the percentage-of-completion method and presented by financial year do not necessarily correspond to an even distribution of the final overall result over the contract period. Calculating the total result of a contract involves estimates of the total cost of completing the contract and the progress of the work to be invoiced. If the estimates of the final result of the contract change, the effect of this is reported in the period when the change first became known and could be estimated.
Goodwill is based on management estimates. Goodwill is tested for impairment annually or if necessary more often by the Group.
INTERNAL CONTROL AND AUDIT
Internal control aims at protecting the Company and its business areas’ resources from wrongful use; it makes sure all business transaction are authorised in the necessary manner, supports IT system management and ensures the reliability of financial reporting. In Consti, internal control is foremost the responsibility of line management, which is supported by the Group’s support functions. A third level of internal control is made up of internal and external audit, which confirm that the first two levels of control function efficiently.
Consti does not have a separate corporate audit function, as internal control responsibilities have been divided inside the corporation between different functions and areas. Consti’s external auditor’s audit plan takes into consideration that the Company does not have a separate corporate audit function.