GOVERNANCE


Enterprise-wide Risk Management

At CHI, effective risk management is integral to our business’ sustainability and the preparedness and resiliency of our operations, facilities and project sites. We take strategic approaches in managing current and perceived risks to an acceptable level—both holistically and individually—at all levels of the company.

Embedded in our Corporate Culture

Our Enterprise-wide Risk Management (ERM) program adopts a top-driven, bottom-focused approach. Risk awareness is embedded in our corporate culture with management taking on an active role in managing risks. The identification, management and monitoring of key risks are done on all levels of the company and are part of daily operations.

 

Key Characteristics of the Company’s Risk Management Processes

  • Board-level understanding and commitment to Risk Management as an integral aspect in decision making and driving value
  • Transparency of risk communication
  • A risk culture that encourages accountability at all levels
  • A Chief Risk Officer and team who drives key management processes
  • Identification of existing and emerging risks
  • Use of both operational and financial risk information in decision making processes
  • Formal collection and incorporation of operational and financial risk information into decision-making and governance processes
  • Moving beyond risk avoidance and mitigation to finding value-creating opportunities in risk management

 

Guided by a Framework

Our ERM framework details the process of identifying risks for the company and its subsidiaries. This is supported by comprehensive risk identification, review, monitoring and reporting process at all levels in the company.

Our framework focuses on four main categories: strategic, operational, financial and environmental risks.
Enterprise-wide Risk Management

Chief Risk Officer (CRO)

The Chief Risk Officer and his team are responsible for creating a culture that actively recognizes and addresses risks to our operations. Together with management, the company takes charge of building its capacity to formulate strategies and execute decisions that will make our business sustainable and relevant.

Specifically, the CRO has the following tasks:

  • Establish the risk culture in the company and create the vision and purpose of the risk function
  • Oversee risk-identification and mitigation activities
  • Implement continuous improvement of risk management policies and processes
  • Set acceptable levels of risk appetite
  • Set an effective control environment

The CRO reports on a quarterly basis to the Risk Oversight Committee on the status of key risks, performance indicators, and mitigation plans to manage those risks. This report presents insights on:

  • Established risk management policies
  • Set risk management activities that monitor the company’s key risks

 

Protected by Lines of Defense

We have identified the company’s three main risks: Competitor Risk, Project Execution and Delivery Risk, and Changing Market Risk. Please see sidebar on page 114 for definitions of these key risks.

To manage these risks, we apply three lines of defense in ERM and internal controls:

RISK MANAGEMENT AND ACCOUNTABILITY AT SOURCE
Risk Owners/Business Group Level

  • Risk management embedded within critical processes
  • Risk owners take active role in identifying, assessing, and treating risks in daily operations
  • Processes, procedures, control instituted at business group level

 

RISK GOVERNANCE
ERM Team

  • Chief Risk Officer leads the ERM Team to ensure risks are effectively managed and relevant risks are addressed
  • Periodic review and monitoring of key risks and indicators
  • Periodic reporting of key risks and mitigation plans to Risk Oversight Committee

 

RISK OVERSIGHT
Board Committees/Audit (Internal and External)

  • Risk Oversight Committee provides oversight on risk management activities, approves ERM policy, reviews status of top corporate risks and effectiveness of the ERM process
  • Audit Committee provides oversight functions on financial reporting, internal control, internal audit, external audit, and compliance
  • Internal audit periodically reviews processes and controls and recommends areas for improvement through its assurance and consulting activities
  • External audit conducts periodic independent assessment of financial controls and processes in conjunction with the preparation of the financial statements

 

Key Risks

Competitor Risks

Actions of competitors or new entrants to the market may affect the company’s competitive advantage and may pose difficulties in achieving our business objective. We manage these risks by regularly monitoring market indicators and use this as basis for informed decisions and possible opportunities. We also analyze current and future situations and develop plans and programs accordingly.

 

Project Execution and Delivery Risk

Market-driven factors (e.g. costs and availability of labor), fortuitous events (e.g. earthquakes, typhoons) or natural environment conditions (e.g. soil type) may affect the company’s ability to deliver projects within agreed timelines, customer expectations and agreed costs. We regularly monitor the status of our projects to ensure that we meet our customer’s needs and achieve our sales targets.

 

Changing Market Risk

Changes in the market brought about by macro-economic, social, political and consumer conditions (e.g. lifestyle demands) may affect the company’s ability to respond to opportunities in the marketplace, anticipate and respond to the demands of our consumers, and maintain or increase our revenue and profitability in the specific business environment where we operate. We respond by pursuing various opportunities to partner with strong local developers and diversify our product lines.

 

A Driver of Key Strategic Actions

Through our ERM program, CHI directed the following key strategic actions in 2017:

Protecting the Balance Sheet through Financial Risk Management

We continue to take advantage of the current low but slowly increasing interest rates by maximizing its leverage and converting our short-term to long-term debt at favorable rates to fund the construction of our leasing projects. This allows us to better balance our debt capacity and maturity with a steady recurring income.

 

Monitoring of Major Market Indicators

We rely on close monitoring of major market indicators for guidance in project investments. Forecasts, industry, and sales reports are regularly monitored and reported to the project teams and senior management to provide them a clearer perspective of prevailing market conditions and issues on the ground for a more informed decision-making process.

 

Close Monitoring of Ongoing Projects

The early identification and management of delivery risk allows us to move our projects on the right track, meet our customers’ requirements, and achieve our sales and turnover targets.

 

Expanded Partnerships Beyond Parent Company

Strong synergies diversify risk and create the opportunity for us to increase our reach and depth in the Cebu market.

In 2017, our continued partnership with strong local developers, Taft Punta Engaño Property, Inc. with Gaisano Group in Mactan, and Cebu District Property Enterprise with Ayala Land and Aboitizland in Mandaue, allowed us to maintain a strong market presence and expand our portfolio through solid synergies, advanced master-planning, stronger combined branding, and deeper market knowledge. These partnerships benefit from the combined financial strength, technical expertise, and real estate experience of the companies.

 

Diversification of Product Lines

Since 2013, we have been diversifying our portfolio with the introduction of the Amaia brand for affordable housing, and office condominiums for sale, thus extending our market reach.

 

Active Management of Environmental Risks

Our operations have a major impact on the environment and social conditions in the areas where we operate. Together with parent company Ayala Land, we outlined our sustainability focus areas where we can affect positive change through our developments. These include:

  1. site resilience,
  2. eco-efficiency,
  3. pedestrian-transit connectivity and
  4. local economic development.

Programs have been implemented in 2017 for these focus areas.

We also continue to adapt measures to reinforce our Business Continuity Plan. Our Crisis Management Team ensures continuous operations, or at least minimal disruption, during calamities and unforeseen events. Improvements on our services and facilities have also been implemented to ensure the safety of our stakeholders and enhance our readiness in times of emergencies and calamities. These allow us to protect our assets, especially our employees, customers, and locators in our facilities.

 

Assessing our Risk Maturity

Aon PLC, the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services, designed the Aon Risk Maturity Index—an innovative tool to assess an organization’s risk management practices through a Risk Maturity Rating.

This assessment tool focuses on the 10 characteristics of risk maturity, as follows:

  • Board Understanding and Commitment to Risk Management
  • Risk Management Stewardship
  • Risk Communication
  • Risk Culture Engagement & Accountability
  • Risk Identification
  • Risk Management Strategy Development
  • Risk information & Decision Making Processes
  • Risk Information & Human Capital Processes
  • Risk Analysis & Quantification
  • Risk Management Focus & Strategy

Using this tool to self-assess our existing risk management approach, findings showed that the company is at an Operational Level of Risk Maturity.

There is a clear understanding of the organization’s key risks and also a consistent execution of activities to address these risks. Some functional areas employ more sophisticated techniques whenever necessary.

  • Predetermined or developing set of loss and tolerance guidelines
  • Explicit consideration of risk and risk management information in key decisions
  • Consistent application of analysis with incorporation of both qualitative and quantitative techniques

Aon’s recommendations to further develop risk management capabilities were as follows:

  • Incorporate risk management responsibilities into job descriptions and performance evaluations;
  • Formalize risk tolerances, including metrics and reporting requirements;
  • Identify opportunities for efficiency, consistency and collaboration among risk-based functions and processes;
  • Incorporate risk correlation within existing risk quantification approaches;
  • Conduct a robust assessment of emerging risks with key stakeholders (internal and external);
  • Confirm and enhance risk reporting frameworks at management, executive and Board levels;
  • Implement a risk management technology solution;
  • Expand understanding of the impact of employee life cycle and employee engagement; and
  • Confirm that risk management practices add value and support in identification of opportunities as well as risk avoidance and mitigation.