Jetwing Lighthouse

Risk Management

Unwavering Prudence

The risk management system of The Lighthouse Hotel PLC is structured to identify and control the risks specific to the industry in which it operates as well as general risks applicable to all entities. Therefore appropriate systems, policies and procedures are in place in all areas of operations and they are periodically reviewed to ensure adequacy and adherence. In the current business environment, change has become the norm rather than the exception. Managing risks in a changing environment effectively, particularly the major risks that may affect our business plans and strategic objectives, we are able to protect or enhance our key assets appropriately.

The Company identifies three main categories of risk-

1. Strategic and Market Risks - Risks that affect the Company’s high-level strengths and weaknesses or reflect risks from the external environment. These risks are managed by Senior Management.
2. Operational Risks - Risks that are caused due to day-to-day operations of the Hotel.
3. Financial Risks - Risks of losses arising from the adverse movements in market prices, risks that the Company may not have sufficient funds to meet financial obligations and failure of a customer to meet its contractual obligations.

These main categories of risks are further analyzed into sub components.

Risk Factors

In this section we describe the material foreseeable risks that could have a material effect on the Company’s business operations, cash flow, financial condition, turnover, profits, assets, liquidity and capital reserves. We provide information on the nature of the risk, an indication of the potential impact and actions taken to mitigate risk exposure. All potential risks are not listed below. Some risks are not yet known to LHH and some that LHH does not currently believe to be material could later turn out to be material.

Risk Category and Description Potential Impact Actions Taken to Mitigate Risk
1. Strategic & Market Risks
1.1. Business Risk
The inability of the Company to achieve its business objectives
  • Reduced revenue, cashflow and profitability
  • Hinder future growth
  • Detailed operational and capital expenditure budgets are formulated on an annual basis and formally approved by the Board. These plans are thereafter monitored and reviewed by the Board to assess actual performance against those planned and take remedial action wherever necessary.
  • Project feasibility studies are conducted for all major investments.
  • Implementation of cost control procedures and innovative cost saving initiatives particularly with regard to energy costs.
  • Performing Competitor analysis.
1.2. Political, Economic and Environmental Risks
Major events affecting either economic or political stability on a global and local level represent an exposure to the Company
  • Reduced revenue, increased operating costs resulting in reduced profitability and cash flows
  • Control over the ownership of assets
  • Management regularly reviews political and economic developments and seeks to identify emerging risks at the earliest opportunity.
  • The Company being a member of key bodies such as Chamber of Commerce, Tourist Hotels Association of Sri Lanka has been working closely with them and other various trade associations, relevant authorities and lobby groups in creating a better economic environment at all times.
Events that adversely impact domestic or international travel
  • Occupancy and room rates can be adversely affected by events that reduce domestic or international travel. Such events may include acts of terrorism, war or perceived increased risk of armed conflicts, epidemics, natural disasters, increased cost of travel and industrial action. Reduced demand will impact on revenues and operational profitability
  • The Company has in place contingency and recovery plans to enable it to respond to major incidents or crises.
Risks from natural or man-created disasters
  • Loss of assets
  • Transferring risks to third parties through insurance policies. The adequacy of insurance covers are regularly reviewed and adjusted when necessary
1.3. Competitive Risk
Company is exposed to the risks of the hotel industry supply and demand cycle such as competitive actions from existing hotels and new entrants increasing room supply
  • Future operating results could be adversely affected by industry over-capacity of number of rooms
  • Reduction in market share (lower occupancies), rates resulting in reduced revenues, increase in marketing expenses reduces cash flows and profitability.
  • Providing a unique service quality associated with Jetwing brand only
  • Consistently delivering of service quality to influence consumer preference and creating and maintaining value perception
  • Make timely investments to upgrade the facilities
  • Maintain the long-term relationships with major tour operators
2. Operational Risks
2.1. Reputation and Intellectual Property Rights Risk
  • The Company is reliant on the reputation of its brand and the protection of its intellectual property rights
  • Service quality may not be delivered in accordance with the Company’s standards
  • Reduce brand value, market share, revenues, profitability and cashflows
  • Increase Company’s exposure to litigation
  • Continuous monitoring and review of online customer reviews and ratings
  • Investments made in protecting the Company’s brand from misuse and infringement, by way of trade mark registration and domain name protection
  • Company monitors adherence to its safety or operating and quality standards, or the significant regulations applicable to hotel operations
  • Provides regular training to associates to educate on the quality standards and new developments in the hospitality industry
2.2. Demand
  • Adverse impact on Company turnover due to shift in demand from traditional source markets to new emerging markets
  • Reduce room nights, revenue
  • Lower room rates due to lower occupancy
  • The hotel is well represented at international trade fairs
  • Increase registration with Online Travel Agents
  • Increase presence in social media channels
  • Maintain the long term relationships with major tour operators
2.3. Employee Risk
  • Failure to attract and retain skilled employees may threaten the success of the Company’s operations
  • Inability to achieve planned business objectives
  • Reduced quality of standards resulting in reduced guest satisfaction.
  • Development and maintenance of a Company culture, compensation and benefits arrangements, training and development are key activities carried out
2.4. Technology Risk
  • Inaccurate information
  • Reputation and performance of the Company will be adversely affected
  • Regular review of systems and upgrades where appropriate
2.5. Project Implementation Risk
  • Cost overruns
  • Delays in project implementation may cause loss of earnings
  • Establish project cost and timelines in consultation with stakeholders
  • Monitor project progress with budgeted cost and time
2.6. Statutory & Legal Risk
  • Risk of litigation due to legal and statutory requirements not being fulfilled
  • Legal fees and penalties resulting in reduced profitability
  • Adverse impact to reputation
  • Loss arising from defective contracts
  • Company continues to monitor changes in the regulatory environment in which it operates
  • Statutory declaration is made to Board each quarter
  • Compliance audits are included in the scope of the internal audit programme
  • Engage professional consultants to review contracts
2.7. Internal Operational Processes
  • Risk of financial loss due to breakdown in internal controls
  • Internal process failures
  • Frauds
  • Loss of data
  • Outsource internal audits to reputed Audit Firms to review and report on the adequacy of the financial and operational controls
  • Defined systems and procedures are in place to ensure compliance with internal controls
  • Adequate fidelity covers are obtained
3. Financial Risks
3.1. Credit Risk

Risk arising due to default of payment
  • Reduce profitability
  • Increase working capital
  • Credit is provided only for credit approved agents. Credit approval is granted by the Credit Committee at corporate office and credit approved list has been prepared
  • Actively monitor and review debtors
3.2. Exchange Rate Risk

Risk arising due to the volatility in foreign currency exchange rates
  • Impact on profitability on translation of foreign currency transactions.
  • As far as possible enter in to sales contracts with tour operators/agents in USD.
  • Monitor the exchange rates on a daily basis.

Cinnamon
Room

Peaceful and serene - the verandah and pond in front of The Cinnamon Room