Annual Report 2012 - Cadogan

CHIEF ExECUTIVE’S REVIEW 31 DECEMBER 2012
approach to Risk Management
Cadogan is a long term property investor with a clearly
defined focus on high quality property assets located in
central London. The group has appropriate policies and
methodologies in place to identify, assess and manage the
risks faced by the business. Because of its private ownership
and long-term outlook the group aims for, and is able to
achieve, a high level of resilience in all areas of its business.
The group maintains a Risk Register which identifies the
principal risks impacting on the group's operations and
financial position. The Register provides an assessment of
the likelihood of the identified risks materialising and
includes an estimate of the potential impact of each area
of risk on the group's business. The Register also lists the
key actions which have been put in place to avoid,
eliminate or mitigate the identified risks. The group also
make use of appropriate external specialists to advise on
compliance with the established policies and regulations.
The principal risks and uncertainties faced by the group
and a brief summary of how it deals with each of these
areas of risk are set out below:
Property market risks – the risks arising from property cycles
and from shorter term unexpected changes in the market
for property investment, development and occupation.
As a long-term investor the group is less reliant than others
upon predicting property market cycles and aims to
manage the impact of the property cycle and any other
short-term fluctuations in values or activity levels by
ensuring that the group has a relatively high proportion of
committed long term loan finance and high levels of
available liquidity. These factors also assist the group in
managing cash flow and liquidity risks.
Although the group’s properties are concentrated in a
relatively small geographic area there are a large number of
properties in many different uses. The largest individual
property represents 4.6% of the total portfolio value and the
highest individual rent 4.2% of total annual rental income.
Finance and cash flow risks – the risks associated with
unexpected changes in interest rates and availability of
debt finance.
The majority of the group's long-term borrowings are at
fixed rates of interest, achieved either by agreement with
the lender, or through the interest rate derivatives market.
The group board requires at least 75% of long-term debt
to be subject to fixed rates of interest. The group does not
undertake financial instrument transactions that are
speculative or unrelated to the group's trading activities.
Board approval is required for the use of any new financial
instrument.
The group seeks to manage refinancing risk through the
use of a spread of loan maturities. In normal circumstances
loan terms are for an initial period of 10 years or more. The
incidence of maturities is spread so as to ensure that major
re-financings do not coincide in a single year.
The various private placings of debt which the group has
undertaken in recent years have included a significant
proportion of US dollar borrowings. All exposure to US
dollars in relation to both interest and capital repayments
was swapped into sterling on the date on which the loans
were committed, and as a result there is no residual foreign
exchange risk exposure to the group. Operationally the
group has no foreign currency exposure.
Property operational risks – the risks associated with the
management and ownership of property.
The group accords a high priority to health and safety
issues. The group has well established compliance and
reporting procedures to ensure that health and safety risks
are reduced and eliminated as far as is practicable. During
the course of 2012 the group sought an external audit of
its health and safety policies and procedures, the results of
which confirmed the quality and integrity of the group's
health and safety practices.
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