RISK MANAGEMENT STRATEGIC RISK A large part of the Group’s strategic risks comprises market-driven forces, evolving business landscapes, changing customer demands and disruptive innovations. The Group remains vulnerable to uncertainties in the major economies, implications from geopolitical developments, keen competition and pressure in the real estate and hospitality industry. MARKET AND COMPETITION Given the geographical diversity of our business, the Group is exposed to various levels of event risks in major economies, as well as in key financial and property markets in which we operate. The Group’s principal business operations comprising property development, property investment and hotel operations, face significant competition across the diverse markets in which it operates, and the failure to compete effectively in terms of price, market positioning, product quality, and levels of service could adversely affect the Groups’ financial condition and results of operations. We manage this risk by: a) Monitoring macroeconomic trends, market conditions, and developments, and formulating responses and pre-emptive strategies accordingly. b) Leveraging our market analytics and project delivery expertise to introduce quality products and innovative solutions to meet the evolving consumer demands. c) Strengthening our brand and competitiveness through product differentiation, market positioning, operational efficiency, transformation through innovation and creating new revenue generating platforms, as well as leveraging a portfolio of distribution channel partners. d) Diversifying of portfolio across geographies, focusing on core markets and cities where the Group has operational scale, and where underlying economic fundamentals are more robust. e) Distinguishing the quality, value, and efficiency of our lodging products and services by focusing on delivering a seamless customer experience, including our Loyalty Programme, direct booking channels, and consumer-facing technology platforms and services, from those offered by others. RISK GOVERNANCE The Group’s risk governance structure comprises three lines of defence that illustrate how specific duties related to risk and controls are assigned and coordinated within the Group, to facilitate timely risk identification, escalation and provision of Board assurance. Risk and control certifications from head of division/ department (for e.g. Control Self-Assessment) Direct reporting line Indirect/administrative reporting line Management Oversight Third Line of Defence Second Line of Defence First Line of Defence Board Level Oversight RISK MANAGEMENT PROCESS The Group adopts an integrated top-down and bottom-up risk review process that enables systematic identification and prioritisation of all material risks. An integral part of the process towards effective risk management is continuous communication and consultation with internal and external stakeholders. This enables the Group to understand the importance of risk management, to appreciate the decisions that are taken within the Group, and to implement the best policies and practices necessary for the benefit of the Group. MATERIAL RISKS TO THE GROUP The Group categorises its risk profiles into four key areas: Strategic, Treasury and Financial, Operational and Compliance, and Information Technology. These risks vary widely, with many being beyond the Group’s control. The Group is committed to mitigate risk exposure through appropriate risk management strategies and adequate internal controls. Close monitoring and control processes, including the use of appropriate key risk and key performance indicators, are implemented to ensure the risk profiles are managed within the Group’s risk appetite and tolerance limits. Alignment, communication coordination, collaboration External Assurance Providers First Line of Defence – Risk Owners – Second Line of Defence – ERM– Third Line of Defence – Internal Audit & MRC – The line managers of the respective business and support functions are accountable and responsible for implementing and executing effective controls to manage the risks arising from their business activities. This includes establishing adequate managerial and supervisory controls to ensure compliance with policies, risk appetite, threshold limits and effective risk controls, and to highlight gaps, inadequacy of processes and unexpected risk events. The ERM function is responsible for designing, implementing and improving the risk management framework as part of the ERM and control assurance programme. It also provides independent identification, assessment, monitoring, and reporting of the Group’s risk profiles and material risk issues to the MRC and ARC. The MRC comprising Senior Management and relevant key executives, meets with the ExCo to discuss material risks and the adequacy and effectiveness of mitigations on a regular, at least quarterly, basis. The meeting is facilitated by the ERM function. The Internal Audit department provides independent assurance on the adequacy and effectiveness of the internal controls and risk management framework to the ExCo and the ARC. Significant risk issues are then surfaced for discussion with the ARC and the Board by ExCo on a regular, at least quarterly basis, to keep them fully informed in a timely and accurate manner. All ARC members, including the Chairman of the ARC, are independent non-executive directors. Board ARC Risk Management and Internal Control Situation ExCo MRC ERM Risk Owners Internal Audit CORPORATE GOVERNANCE 67 66 CORPORATE GOVERNANCE ANNUAL REPORT 2023 CITY DEVELOPMENTS LIMITED
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