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A formal risk management framework was established in
2002 to enable significant business risks within the Company’s
property investment, development and management arm
to be identified, assessed, evaluated, monitored and managed.
The framework provides for a structured process for
management to conduct risk assessments and evaluations;
consider the adoption of adequate and cost-effective system
of internal controls to mitigate significant business risks; and
manage these risks through regular reviews. During the year
under review, the Company engaged a firm of independent
consultants to review its existing risk management framework
as part of the Company’s commitment to continually enhance
its risk management policies and processes.
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OPERATING RISKS
The risk management framework is integrated into the
management processes at operational levels, with the respective
management at divisional and departmental levels being
responsible for identifying, assessing, mitigating and managing
the operating risks within each of their functional areas.
The implementation and use of a system of internal controls,
and operating, reporting and monitoring processes and procedures
(including processes involving due diligence and collation
of market intelligence and feedback), supported by
information technology systems and constant development
of human resource skills through recruitment and training, are
important elements of the risk management framework, to
mitigate risks relating to product and service quality assurance
management, costs control management, design and product
innovation, market intelligence, financial control management
and regulatory compliances in the Company’s operations.
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INVESTMENT AND PORTFOLIO RISKS
Risk evaluation forms an integral aspect of the Company’s
investment strategy. Balancing risk and return across asset
types and geographic regions are primary considerations to
achieve continued corporate profitability and portfolio
growth. This risk assessment includes macro and project specific
risks analysis encompassing rigorous due diligence, financial
modeling and sensitivity analysis on key investment assumptions
and variables. Each investment proposal is
objectively evaluated to fit the corporate strategy. Potential
business synergies including collaboration risks assessments
are identified early to ensure business partnership objectives
and visions are well aligned and collaboration partners are
like-minded.
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TREASURY & FINANCIAL RISKS
Exposure to credit, interest rate, liquidity and currency
risks arise in the normal course of the Group’s business activities.
The Group’s overall objectives and policies focus on
managing financial risks by using financial instruments, where
appropriate. Use of derivatives is for purposes of hedging only
against specific exposures and derivative transactions are entered
into in a manner consistent with the overall policies of
the Group. The Group does not enter into derivative transactions
for speculation purposes.
Credit Risk – The management has a credit policy in place and
the Group’s exposure to credit risk is monitored on an ongoing
basis. Credit evaluations are performed on all customers requiring
credit over a certain amount. The Group does not require
collateral in respect of these financial assets. Transactions involving
financial instruments are entered into only with counterparties
that are of acceptable credit quality.
Liquidity Risk – The management monitors its liquidity risk and
maintains a level of cash and cash equivalents deemed adequate
by management to finance the Group’s operations and
to mitigate the effects of fluctuation in cash flows.
Interest Rate Risk – The Group’s exposure to market risk
changes in interest rates relates primarily to its interest-bearing
financial assets and debt obligations. The Group adopts
a policy of managing its interest rate exposure by maintaining
a debt portfolio with both fixed and floating rates of interest.
Where appropriate, the management uses interest rate derivatives
to hedge the Group’s interest rate exposure for specific
underlying debt obligations.
Foreign Currency Risk – The management manages the
Group’s foreign exchange exposure by a policy of matching
receipts and payments, and asset purchases and borrowings
in each individual currency. Forward foreign exchange contracts
are used purely as a hedging tool, where an active
market for the relevant currencies exists, to minimise the
Group’s exposure to movements in exchange rates on firm
commitments and specific transactions. Whenever necessary,
the Group finances its property, plant and equipment purchases
by using the relevant local currency cash resources and
arranging for bank facilities denominated in the same currency.
This enables the Group to limit translation exposure to
its balance sheet arising from consolidation of the Group’s
overseas net assets.
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HUMAN RESOURCE RISKS
The Group recognises human resource as an important
contributing factor towards the stable growth of the Group,
and accordingly efforts are taken to enhance the processes
for recruitment, compensation, training and development of
employees. Identification of core competencies is critical in
the employee selection and development processes, and the
implementation of performance assessment and management
programs, coupled with career development and training
programs, are part of the Group’s human resource strategy
to improve work performance, maximise competencies,
increase staff commitment and retention, and develop further
an effective succession planning program within the organisation.
The management also supports work-life harmony programs
and family-friendly policies as part of its efforts to help
employees achieve a balanced life between work and family
and at the same time create a quality workplace.
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CRISIS RISKS
Operating in an environment with potential threats of terrorism,
epidemic outbreaks and information systems failure,
the management has put in place a business continuity plan
to mitigate the risks of interruption and catastrophic loss to
its operations and information database arising from such
potential threats. The business continuity plan includes identification
of alternate recovery centers, and the establishment
of clear operational procedures to enable communication,
continuity of critical business functions and recovery of database
in the event of a crisis incident. Periodic incident management
drills are conducted to familiarise employees with
the emergency response and crisis management plans of the
Company. The maintenance of adequate insurance coverage
for the Group’s assets, and the protection of and continued
investment in the security and integrity of its information
technology systems and database which are highly integrated
with its business processes, are also part of the Group’s control
processes for the protection of its assets.
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HOTEL OPERATIONS RISKS
The Group’s hotel arm, under Millennium & Copthorne
Hotels plc (“M&C”), includes within its internal control framework,
processes for the management of key risks to the success
of the M&C group, which are regularly reviewed by
M&C’s audit committee and board. These processes include,
but are not limited to, risks relating to the protection of the
M&C group’s brands and intellectual property rights, exposure
to litigation, market share and competition, human resource,
customer satisfaction, health and safety issues, treasury
and financial performance, acquisition opportunities,
insurance, hotel and information technology systems and infrastructure,
and global and regional political, economic and
financial market developments.
The Audit Committee has reviewed the Group’s risk management
processes and procedures and is satisfied that there
are adequate internal controls in place to manage the significant
risks identified.
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