A formal risk management framework was established in 2002 to enable significant business risks within the Companyís 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 Companyís commitment to continually enhance its risk management policies and processes.


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 Companyís operations.


INVESTMENT AND PORTFOLIO RISKS

Risk evaluation forms an integral aspect of the Companyís 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.


TREASURY & FINANCIAL RISKS

Exposure to credit, interest rate, liquidity and currency risks arise in the normal course of the Groupís business activities. The Groupís 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 Ė The management has a credit policy in place and the Groupís 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 Ė The management monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Groupís operations and to mitigate the effects of fluctuation in cash flows.

Interest Rate Risk Ė The Groupís 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 Groupís interest rate exposure for specific underlying debt obligations.

Foreign Currency Risk Ė The management manages the Groupís 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 Groupís 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 Groupís overseas net assets.


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 Groupís 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.


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 Groupís 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 Groupís control processes for the protection of its assets.


HOTEL OPERATIONS RISKS

The Groupís hotel arm, under Millennium & Copthorne Hotels plc (ďM&CĒ), 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&Cís audit committee and board. These processes include, but are not limited to, risks relating to the protection of the M&C groupís 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 Groupís risk management processes and procedures and is satisfied that there are adequate internal controls in place to manage the significant risks identified.