INTERNAL CONTROL
The aims of internal controls and risk management are to ensure that the Company’s business is efficient and profitable, that reporting is consistent and reliable, and that applicable laws, regulations and the Group’s operating principles are observed.
The Board of Directors is responsible for ensuring that the Group’s internal controls and risk management as a whole are adequate given the scope of business operations, and that their supervision is appropriately organised. The Board of Directors supervises the work of the President & CEO to ensure that he or she handles the Company’s operative business and governance in accordance with the guidelines and orders issued by the Board of Directors. The Board of Directors deals with the Group’s business sector reviews, the Group’s financial reports, and important changes that have occurred in the business in order to ensure adequate risk management. In addition, the Board of Directors’ Audit Committee assesses the adequacy and appropriateness of internal controls and risk management.
The President & CEO is responsible for the practical organisation of internal controls. The President & CEO ensures that supervision of the Company’s bookkeeping and asset management is appropriately organised.
Lemminkäinen Group’s business is organised into business sectors, and the executive vice presidents responsible for their management report to the President & CEO. The Group’s other directors and managers are responsible for internal controls in their own areas of responsibility.
The key means of controlling and monitoring the Company’s functions so as to ensure their efficiency and appropriateness are the financial reporting and business reviews of management at business area, business sector and Group level. The aim of internal controls over financial reporting is to ensure that published interim financial reviews and year-end financial statements are prepared in accordance with the accounting and reporting principles adopted by Lemminkäinen, and that they are reliable and give an end-result in keeping with expectations. The internal control function also monitors financial reporting to ensure that it is handled in accordance with the timetables laid down for it. The Company’s financial reporting processes and risk management are described in greater detail in a separate report on the Corporate Governance Statement.
The Group’s legal affairs are co-ordinated by a Group-level unit in order to promote consistent practices and to ensure the management of juridical risks. The personnel are given regular training in legal and contractual matters. The Group also has detailed instructions concerning different areas, such as competition law and insider issues. Observance of the instructions is monitored as part of operative management. Training is also given on the instructions.
Lemminkäinen’s shared values and principles of good business practice define how the personnel are expected to work and interact with partners and other stakeholders. The values, the principles of good business practice and the Group’s new strategy are closely interconnected, and their practical implementation is a key part of leadership and everyday management.
RISK MANAGEMENT
The purpose of risk management is to support the achievement of the Group’s strategic and operative goals and ensure the continuity of the business. The aim is to identify key risks, such as risks threatening the Company’s business, property, operating environment, customers, agreements, expertise, financing or strategy.
Risks threatening the attainment of Lemminkäinen’s goals are identified and assessed as a part of everyday business and the actions necessary to control the risks are implemented. Risks are also identified within the project management process and the Group’s different quality and management systems, the observance of which is assessed in the manner required in the systems. Significant risks concerning individual sectors, business areas and projects are reported to the President & CEO, the Executive Board and the Board of Directors. Short-term risks and uncertainties are described in greater detail in the interim financial reviews and financial statements bulletins.
The aim of the risk analyses for individual business sectors is to identify essential risks threatening the organisation and to assess their significance as well as the adequacy of control measures and the need for development. The key results of risk analyses as well as management’s action plans for the development of risk management are reported to the Board of Directors.
Lemminkäinen’s risks are divided into six categories: market risks, project risks, financing risks, credit loss risks, environmental risks, and accidents and damage. Short-term risks and uncertainties are described in greater detail in the interim financial reviews and financial statements bulletins.
Market risks
The most significant of Lemminkäinen’s market risks is the cyclical nature of new construction in Finland. This risk is managed structurally and operationally. Unlike most other construction companies, the structure of the Lemminkäinen Group is such that business sectors sensitive to the cyclical nature of domestic building construction make up only about a half of its business. Operationally, the Group counters market risks by maintaining the flexibility and responsiveness necessary to adjust quickly to changing market conditions.
Project risks
Building contracting projects are exposed to the risk of estimated contract costs being exceeded. Lemminkäinen manages its project risks in many ways. Business is structured so that the average contract size is quite small. The net sales generated annually from even the biggest of Lemminkäinen’s contracts will generally not exceed 5 % of the Group total in any given year. This means that the failure of an individual contract cannot have a major impact on the Group’s result.
Lemminkäinen is also selective when deciding on the projects for which it will submit tenders. The Company does not tender for projects when it does not possess the necessary resources or previous experience. In addition, great attention is continuously paid to project management and its development.
The sales risk associated with own housing and commercial developments is controlled by not starting such developments without advance marketing and the receipt of sufficient reservations. Unplanned land or building rights are not acquired for future use without clear plans as to when construction could start and who could be the site’s users and owners.
Financing risks
All significant corporate or business acquisitions are evaluated critically from the perspectives of the cash flow that they would generate and their potential impact on the balance sheet. The Group hedges interest rate and foreign exchange risks in the conventional ways. The maturities of seasonal credit stemming from the nature of Lemminkäinen’s business are short, while those of other borrowings are mostly long.
Credit losses
Credit loss risks are avoided by actively monitoring trade receivables.
Environmental risks
The environmental risks associated with the Group’s operations have been identified. Risk assessment and risk management are part of the Group’s normal operations. Environmental risks are minimised by reducing emissions and by improving the safe storage and handling of oils, lubricants and other chemicals. The management of environmental affairs and the effects of the Group’s operations on the environment are continuously monitored by means of internal monitoring and control programmes.
Accidents and damage
Owing to the accident-prone nature of construction work, special attention is continuously paid to the development of industrial health and safety.
The Group’s fixed assets are insured against damage or loss in accordance with the insurance policy approved annually by the parent company’s Board of Directors.
Updated 26.3.2010