Principle 7: Recognise and manage risk
Companies should establish a sound system of risk oversight and management and internal controls.
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Risk management and internal controls
CMIL is the holder of an Australian Financial Services Licence and accordingly is required to have in place processes including compliance, risk management and internal controls appropriate to the nature, scale and complexity of its business to enable it to meet its obligations under the financial services laws.
As part of its overall process to manage risk, the Directors of CMIL are provided declarations that are required to be made in accordance with section 295A of the Act. When receiving the declaration, the CMIL Board is provided with assurance from the Chief Financial Officer and Principal Executive Officer that the declaration is based on a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial risks. Additional information may be found in the Financial report under the section Directors’ declaration on page 118 of the 2011 Annual Report.
In addition, CMIL recognises that effective risk management forms part of its approach to creating unitholder value over the life of the Trust. CMIL has implemented policies and internal controls to ensure that the Trust’s assets are protected and material risks are identified and appropriately managed.
Risk is managed through the business activities of the Manager, and is independently monitored and reported on by the compliance and risk management personnel, as well as through periodic reporting that is provided to the Board by the Manager.
CMIL has in place an integrated risk management framework that enables the identification, assessment, management and reporting of risks. The framework is consistent with ISO 31000:2009 and the Australian Standards for Risk Management (AS/NZS 4360:2004) and Quality Management Systems (AS/NZS ISO 9001:2008).
CMIL has in place a formal Risk Appetite Statement that comprises its tolerances for risk at a corporate entity level and a Risk Management Strategy for the individual funds it issues. Combined, these statements provide an enhanced model for ongoing management of risk.
CMIL recognises the strategic risks that need to be managed and undertakes a formal annual review of the CFX strategy to maintain its delivery of income and capital return to investors. In particular, the Trust takes account of:
- Asset risk – the Trust invests in quality domestic retail assets. The assets are located in geographically significant market space to provide tenancy capacity and development opportunities to enhance the assets over time. The Trust also seeks long-term tenancy arrangements with its anchor tenants to limit vacancy impacts.
- Gearing – the Trust has in place a limit on its gearing, being a target range of 25% to 30% with a maximum of 35% to enable flexibility for acquisition opportunities and its development pipeline.
- Hedging – the majority of the borrowings in the Trust are hedged to counteract the potential for loss arising from movement in interest rates over the period of time the borrowing is in place.
People and safety – the Manager is committed to providing a fair, safe, challenging and rewarding workplace, and recognises the importance of attracting and retaining high quality people. There are a range of policies and systems in place to enable achievement of these goals, including:
- Equal Employment Opportunity
- Occupational Health and Safety (OH&S)
- recruitment and selection
- performance management
- remuneration and recognition, and
- professional development.
Additionally, the Trust recognises that it has a responsibility to ensure the safety and wellbeing of the users of its centres and facilities, and delivers this through its engagement process, including contractual requirements for OH&S procedures, appropriate insurance of employees and OH&S Committees to oversee policy, implementation and reporting on issues.
The Trust’s risk profile and mitigation controls are formally reviewed on a semi-annual basis. The inputs to this process include the capture of Trust-specific risks that incorporate operational, financial, statutory and internal/external environmental factors applicable to the Trust and the linkage of those risks to the Trust’s investment strategy.
The risk management structure is further supported by the Trust’s Compliance Plan, which identifies and manages the statutory risk applicable to the Trust, its control methodologies and the monitoring obligations of the Trust. The Compliance Plan is available to all unitholders of the Trust on this website or on request.
CMIL has developed a set of core risks that it believes most directly impact the Trust, and that are inherent in the environment in which it operates, which include:
- financial risks, specifically:
- macroeconomic conditions (broader economic and monetary policy conditions)
- refinancing and capital expenditure (cost of capital to fund development and financing arrangements), and
- market volatility (impacts on valuation of assets, financing arrangements, and the price of the Trust securities)
- property risk (risk to assets, development and redevelopment projects)
- insurance risk (assets, contractors and service providers), and
- environmental and sustainability risks, including those arising from government policy.
These risks are not exhaustive; however, they provide investors with an insight into the primary risks that CMIL believes can and do influence the operation of the Trust and the market in which the Trust operates.
Operational risks are monitored and managed on an ongoing basis by the Trust’s management team, and supported by a number of other functional areas that include finance, research, property management services, legal and audit, which provide information, data and reporting.
Mitigation planning and monitoring is achieved through a range of methods. These include:
- the construction of terms of contract where service providers are engaged and the active management of those contracts
- reviews to ensure that changes to statutory, government policy and sustainability risk are communicated to the business in a timely manner to plan for expected operating activity amendments, and
- financial risk is managed through a dedicated finance function (Trust finance teams, financial control and reporting, capital strategy management and forecasting and analytics).
Additional information in the 2011 Annual Report includes:
- Details of current risk issues, as they relate to the Trust in its immediate market environment, are contained in the Fund Manager's report (see pages 10 to 21)
- Sustainability and environmental issues are captured in the Sustainability section (see pages 22 to 31), and
- Financial risks are included in the Financial Report (see pages 68 to 120).
