Annual Report 2011 - Colombo Stock Exchange

Beruwela Walk Inn PLC 9Risk ManagementRisks are the uncertain events, which could influence the achievement of an organization’s strategic, operational andfinancial objectives. The purpose of risk management is to manage and control risk rather than eliminating it. A brief reviewof the key risks associated with the Company’s business and the management of these risks by the Company up till financialyear 2004 when the Company was still active are enumerated below.Business RiskThe tourism industry is susceptible to internal and global factors such as security, political and health concerns whichinfluence travel, particularly to long haul destinations. These issues receive wide publicity in the print and electronicmedia and have an immediate impact on arrivals to the country. The Company always communicates with our trusted touroperators and updates them of the situation in Sri Lanka and mitigates the negative impact arising from the adverse mediapublicity. Furthermore, the sales and marketing division of the Company constantly monitor the advance booking statuswith the respective tour operator and the travel agent to ensure that the occupancy of the hotel is optimized.Operational RiskOperational risk, which is inherent in all business activities, can be caused due to the breakdown of internal controls,information technology failures and human error. The finance division of the hotel assists in the mitigation of this risk.Systems and procedures have been laid down to ensure compliance with the internal controls. These are constantly checkedfor the compliance and reviewed for the effectiveness. The finance division of the Company ensures the strict adherence tothe data back up system to guard against the loss of data and procedures to safeguard the computer system of the hotelso that minimum disruption is caused. The company ensures that the key managerial positions are held by staff who aresuitably qualified and trained and with sufficient experience in the hotel industry.Comprehensive insurance cover has been obtained to mitigate losses arising from a multitude of risks such as fire, burglary,natural causes, fraud by staff, claims by clients and third party on negligence and business interruptions.Financial RiskForeign Exchange RiskA significant amount of the hotel revenue is derived from foreign currency whilst exposure on imports in foreign currency islimited and not significant. Every endeavor is made to contract the hotel rates in US dollars or Euros to ensure that exposureto adverse exchange fluctuations is minimized. The finance division of the Company monitors exchange rate on a daily basisand ensure that the best rates are obtained for conversion of foreign currency whilst also taking into accounts future trendsto determine the timing of conversion.Interest Rate RiskThe Company debts have been structured utilizing a mix of both fixed and variable interest rate instruments to ensure thatthe financial impact due to volatility in the capital market is minimized.Liquidity RiskThe Company aims to maintain a balance between continuity and flexibility of funding through the use of borrowings witha range of maturities.Credit RiskWhilst granting credit to tour operators and travel agents is essential, every endeavor is made to obtain advances wherepossible as well as follow up on trade debtors.Recognizing the dynamic nature of the business transactions and having identified the major areas of risk, the Companycontinuously seeks ways and means of strengthening and developing its risk management system to achieve its objectives.