Risk Policy and Risk Management Plans
Central Pattana recognizes the importance of sustainable risk management to ensure stakeholders of goal attainment while minimizing possible losses. The COSO ERM 2017 framework has been adopted and applied to Central Pattana’s business context. A risk management policy that covers all aspects of the business is then devised and incorporated into the corporate culture. Central Pattana continually reviews risks, taking into account both internal and external factors, risk probability and direct and indirect impacts on the business. The approach not only facilitates risk assessment and identification of major risks, but has also led to the formulation of strategies for monitoring and keeping control of risks manageable.
Business Risk Factors
In 2020, Central Pattana adjusted its joint vision to “Co-create a Center of Life” that illustrates its sustainability by “Creating a Sustainable Future for All” and was ready to step up to the role of a regional property developer with steady, sustainable growth under the expansion of the present program and future projects. The business would look at various asset classes of property, both domestic and international, especially in Southeast Asia in terms of own investment, joint investment as well as takeovers of potential enterprises.
From significant organizational risks in 2019, through the review of challenges and opportunities arising from the Covid-19 pandemic, many significant risks faced Central Pattana or the Group of Companies, including emerging risks in the next three to five years in business, operations, financial status and operating results or survivability of Central Pattana and Group of Companies. These are described below:
Risk in Maintaining Competitive Edge from Change in Consumer Behavior
In 2020, the Thai economy was hard hit by the COVID-19 virus, with the economy shrinking rapidly during the pandemic. Even after the lockdown was lifted, the country’s economy was still reeling. The economy became even more affected from various events: enforced measures to control the entry of foreign tourists, closure of many businesses, especially SMEs, increased unemployment, and reduced work hours, and accumulating household debts. Adding to the damage is the fact that present-day customers are hyper-connected customers - meaning they want the best, with a lot more comfort, but have less patience. Thus, consumer behavior had started to change with the crisis: more purchases of goods and services through the digital platform, such as ordering products online, ordering food through a food delivery service, executing banking transactions online or e-wallet, and requiring more hygiene and safety assurances for goods and services.
In view of this change in consumer behavior, Central Pattana and the tenants, who are our foremost trading partners, faced risks in maintaining competitiveness. The Company still supported and helped develop tenants’ potential while focusing on its own development and improvement to maintain smooth operations while consumers’ behavior are still volatile so as to ensure allow mutual and sustainable growth. Management strategies still maintained a focus on sustainability and becoming the “Center of Life” to create an atmosphere and experience that would actively cater to the needs of each customer group along with organizing activities that correspond to similar customers’ interests. Central Pattana also resorted to technology to increase communication efficiency and offer modernized and impressive services. Furthermore, new services to answer all customers’ needs were regularly created, for example, during the Covid-19 pandemic it developed a masterplan for hygiene and safety standards in providing service. Central Pattana was also one of the first in the industry to create online platforms including Chat&Shop, Delivery&Pick Up Service to cater to changes in customers’ needs and assist all shops affected by the situation. The sales team and the public relations team were also instructed to take care of and follow up shop performances to assist and support them with measures such as providing discounts for affected shops, arranging for promotional activities with business partners, organizing training and seminars to provide new business viewpoints and ideas as well as gathering feedback through consultation and suggestions to help improve services to the shops.
Risk to Company Expansion from Domestic and Foreign Investment
For long-term growth, Central Pattana has plans to invest both domestically and overseas in various portfolios, including development investment by the Company, joint-development investment with partners, or mergers with promising enterprises. For new development project, the trend is for mixed-use, comprising shopping centers, offices, hotels and residences.
Due to diversified development projects, risks also vary with each project. An example is a domestic mixed-use project that requires a large plot of land suitable for a variety of businesses, resulting in risks in the selection of a plot that is cost appropriate, in the planning and design of the project that meet customers’ needs, and in finding tenants who are willing to expand to the new location. For joint-venture projects and mergers, the risks are to find partners with potential and to create an effective governance and coordination system, among others.
Central Pattana provides for risk management of new projects by emphasizing the importance of careful study and planning of the project from feasibility studies, selection of joint partners, market survey and research, design of the project, construction management, sales and after-sales service, as well as recruitment and building new customers/tenants bases, to strengthening relations with present customers/tenants and organizing capacity building activities for present tenants. Once new projects are launched, the Company tracks performance records and regularly evaluates the return of each project to adjust strategies and ensure targeted returns.
Risks of Adaptation in Response to Technological Change, New Types of Businesses and Cyberattacks (Emerging Risks)
At present, rapid and radical technological changes widely disrupt the Company’s business due to a variety of new business, new operations and agencies involved. In the past, it held a strategy to diversify its businesses into other trades or environment that maybe different but hold opportunities for growth and higher returns for the investment. This adaptation increased its resilience for such changes and had become a key factor for the Company’s performance and successes. The COVID-19 pandemic forced it to adjust rapidly in every way, in the prevention, preparation, and response to the emergency situations. Adaptation comprised financial and cash flow management, team restructuring and management, resource management and application of technology to cushion the impacts so that the business could be sustained and recover as soon as possible.
The Company undertook several measures to develop resiliency and agility, such as organizational restructuring and more effective operational procedures as well as an efficient order and approval process such as a flat organization, project-based operation, prototype or pilot project development to test hypotheses, operation efficiency development following a whole-company approach, capacity-building for personnel, training and implementation and job rotation. Another initiative was to instill “4 Beliefs” in all its personnel that will promote resiliency and agility.
In relying more on technology and digital systems, there were more risks of the Company’s data being hacked or coming under cyberattacks that may disrupt company operation or affect company image if not dealt with effectively. Central Pattana has developed its information security management by using ISO 27001 as a reference framework that provides coverage for hardware, software and network, instilling knowledge and awareness in all personnel in the Company and creating a Business Continuity Plan (BCP) and a Disaster Recovery Plan (DRP) in line with the present environment and technological system. A BCP drill is undertaken every year. Furthermore, it took out a cyber-insurance to transfer risk and mitigate impact.
Environmental and Social Risk Concerning Human Rights due Diligence and Good Corporate Governance
Three aspects of sustainability are covered: economic, environmental, and social. Apart from the economic risks presented above, the Company also focused on social and environmental risks that concerned respect for human rights and good corporate governance. Key risks involved are:
- Climate Change
The impacts of global warming are rapid and severe changes in weather patterns which can cause natural disasters and environmental problems in many regions of Thailand, such as earthquakes, storms, floods, draught, fog, and PM2.5 pollution. These disasters affect resource management in business operations and may cause damage to company assets and affect customer service.
Central Pattana requires each shopping center to assess its natural-disaster risks because natural disasters vary in different areas. For example, the North is more prone to thunderstorms, hail storms and earthquakes, while flash floods and monsoons are more common in the South. Central Pattana also put in place risk mitigation measures, such as the requirement to constantly inspect the strength of buildings and facilities, together with preparation of mitigation actions and tools. The latter includes dredging of drainage passages, adding water pumps at flood-prone shopping complexes, finding alternative water sources to alleviate drought, and inviting experts in building structures to assess earthquake impacts and provide recommendations on how to handle future incidents. Central Pattana also reviews and prepares a crisis management plan to cover more scenarios, with regular drills to ensure personnel’s crisis preparedness.
Statistics on natural disasters and the solution outcomes are systematically monitored and collected as incident cases for analysis to improve response plans and the effective management of these plans before reporting them to the Risk Management Committee for acknowledgment and consideration.
- Political Rallies
In 2020, many political rallies ignited by fiery student protests started spreading throughout Bangkok. This was really different from former rallies where protests were often in special locations with political connotations. Such widespread protests made it more difficult for company operations to lessen impacts.
The Company was truly aware of such risks and had introduced the following measures:
- Coordinating and monitoring of movements and updates with government agencies or related organizations to receive timely and accurate information for assessment of situation and preparation. Communication of information was essential to allow concerned personnel to prepare and appropriately handle the situation according to plan.
- Training of personnel involved for knowledge and competency in monitoring and detecting breaches of security as well as holding regular exercises in carrying out contingency plans in case of various incidents.
- Applying modern, adequate technology and security equipment such as walkthrough metal detectors and CCTVs that can deter and discourage those inciting violence. They could also be used for detailed investigations should irregular events occur.
Central Pattana stressed good governance practices and tight internal control under clear and strict implementation of its anti-corruption policy. After joining the Collective Action Coalition against Corruption (CAC), Central Pattana prepared a business code of conduct for the sellers and contractors to continually underline its position on anti-corruption. Our plan and aim was to persuade major partners to join the CAC in all main components of company partnership – sellers, contractors, tenants and similar business enterprises, and so on
In prohibiting and managing risks arising from corrupt practices, Central Pattana has set up measures to control and monitor key work processes that are at risk of corrupt practices, with an internal audit team conducting risk assessment and spot-checking to reaffirm the correctness, honesty and transparency of these processes, along with prohibiting risky behavior. Communication channels are also opened for stakeholders and whistleblowers to voice their complaints or recommendations directly to the Audit and Corporate Governance Committee or the President. A committee will be appointed to consider and investigate complaints through a systematic, transparent and accountable process to ensure confidence and trust in its fair investigation process for all related parties.
- Complying with Personal Data Protection Act (PDPA)
As the Personal Data Protection Act of 2019 was promulgated in May 2020, the Cabinet later announced a delay in enforcing some sections by one year. The situation has allowed Central Pattana more time to better prepare a systematic approach to enforcement. However, regular company operations involved the use of personal data from various stakeholders, such as customers, shops, trading partners and personnel. Moreover, company operations require the use of data by personnel in various units situated in varied locations that may lead to misconduct or incomplete action under pre-determined measures, such as informing concerned personnel of the personal data policy, requesting permission to use data, responding according to the rights of data owners and responding when a leak was detected, for example.
Central Pattana has appointed a working team and representatives of the various units to be responsible for review of the work process relating to personal data, such as acquisition, storage, usage, transfer and deletion of data to determine appropriate procedures in compliance with the law. The working team was also assigned duties for communicating, providing knowledge and ensuring that personnel in their responsibilities comply with the guidelines. Furthermore, the Company is also determined to apply technology and equipment in processes to manage personal information and cut down on the opportunity of human operational errors.
Since the beginning of 2020 when the COVID-19 pandemic emerged, Central Pattana’s business was severely affected. Customers were concerned about coming in to use services, and sales decreased until some shops could not manage their costs. The shopping centers had to close according to lockdown orders from the state, and even after the lockdown was lifted, purchasing power revived slowly and performance missed targets.
The Company worked extremely hard to monitor and assess the situation to quickly control the crisis and adopted preemptive measures to prevent damage and minimize impact on stakeholders – customers, tenants, partners and employees – with foremost consideration for hygiene and survivability for everyone.
Central Pattana’s executives have appointed working teams even before the pandemic was widespread, aiming for crisis management under all conditions while monitoring and assessing situations. Safety measures were specified and designed for application to all phases of the pandemic, including support and harm reduction for tenants, communities and employees, including review and improvement of the crisis management plan and BCP for each situation.
Risk to Investment of Securities Holders
Central Pattana had issued financial instruments such as debentures and bills of exchange. Thus, the securities holder may face the following risks:
- Credit Risk
This is a risk that the issuer of financial instruments may not be able to pay back interest or capital if it becomes bankrupt or is defaulting should securities offered for sale not be protected by the Deposit Protection Agency (DPA). The securities holder is entitled to request debt payment equal to other creditors who are subordinated and unsecured. However, in assessing credit risks of the issuer of financial instruments, the securities holder can view the credit rating listed by the credit rating agencies and should research details before investment, such as performance and financial status of the issuer of financial instruments and should follow updates, including changes in credit ranking from the Office of Securities and Exchange Commission (SEC) or credit ranking agencies. In 2020, Central Pattana was rated at “AA” by TRIS rating, with a “Stable” credit.
- Price Risk
This risk may arise when securities holders want to redeem their securities before maturity dates. Securities may sell for more than the value specified or price bought, so the securities holder may not receive interest or returns, or receive lower interests and returns.
- Cash Flow Risk
This is a risk if the securities holder wishes to redeem securities before the maturity date. The holder may resell the securities to interested parties in the secondary market. The risk is that the holder may not be able to sell the securities immediately at the price they want.