Risk management continues to play an important part in the Company’s business activities and is an essential component of its planning process. The Board has overall responsibility for determining the nature of its business risks and to ensure that risks in new and existing businesses are managed and business plans and strategies accord with the risks appetite that the Group undertakes to achieve its corporate objectives.

To assist the Board in its risk management oversight, the Audit Committee reports to the Board on matters relating to the risk management function of the Company. The Audit Committee, in its review of the effectiveness of the Group’s internal controls system, including risk management systems, oversees the results of the work of internal and external audits. In addition, a Risk Management Committee (“RM Committee”), whose members comprise senior management, is responsible for maintaining a risk management framework which will provide the Board with a systematic and enterprisewide view of the risks involved in property investment, development and management activities, and assists in the implementation of risk management policies and systems.

The RM Committee had, since 2002, established a formal risk management framework to enable significant business risks within the Company’s property investment, development and management arm to be identified, assessed, evaluated, monitored and managed. The procedures and processes implemented have been benchmarked against other international standards and current risk management practices. Further to a review by a firm of independent consultants in the previous year, the Company has during the year under review engaged a firm of independent consultants to assist in implementing further enhancements to its existing risk management framework.

The Company regularly reviews its significant strategic business risks; considers the effectiveness of the Group’s system of internal controls to limit, mitigate and monitor identified risks; and considers the implementation of further action plans to manage strategic business risks which are reflective of changes in markets, products and emerging best practices. The controls set out within the risk management framework are intended to manage, and not expected to eliminate, all risks of failure to achieve business objectives. These controls provide reasonable, but not absolute, assurance against material misstatement of management and financial information or against financial losses and fraud. The results of the risk evaluation are documented in a risk register. The RM Committee reports on a periodic basis, and at least once annually, to the Audit Committee on the overall risks positions, including mitigating measures and treatment plans.

The Audit Committee has reviewed the Company’s risk management system, policies, processes and procedures and is satisfied that there are adequate internal controls in place to manage the significant risks identified. The Audit Committee has further directed the implementation of procedures to monitor and report the occurrence or potential occurrence of significant risk events to the Board. The risks incorporated within the Company’s formal risk management framework include the following:

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, marketing / sales and leasing management, financial control management and regulatory compliances in the Company’s operations.

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 and investment objective. 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 and compatible.

TREASURY & FINANCIAL RISKS

The Group is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include credit risks, liquidity risks and market risks, including interest rate risks and foreign currency risks.

The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

It is, and has been throughout the current and previous financial year, the Group’s policy that no derivatives shall be undertaken for speculative purposes except for the use as hedging instruments where appropriate and cost efficient.

Credit Risk - The Group has a credit policy in place and the 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. Cash and fixed deposits are placed with banks and financial institutions which are regulated.

Liquidity Risk - The Group monitors its liquidity risk and maintains a level of cash and cash equivalents, and credit facilities deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows.

Interest Rate Risk - The Group’s exposure to market risk changes in interest rates relates primarily to its interestbearing 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 Group uses interest rate derivatives to hedge its interest rate exposure for specific underlying debt obligations.

Foreign Currency Risk - The Group is exposed to foreign currency risks on sales, purchases and borrowings that are denominated in a currency other than the respective functional currency of the Group’s entities.

The Group manages its 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.

Wherever 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.

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.

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.

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 periodically 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.