The executive officers and staff members of Lopez Holdings Corporation have been implementing a corporate risk management program since 2002, in line with an enterprise-wide risk management system.
Risks that may hinder the achievement of corporate goals and objectives are identified and reviewed regularly to ensure mitigation measures are in place to adequately respond to and manage such risks.
On September 3, 2014, the FPH Group and ABS-CBN presented their respective risk management systems to the Risk Management Committee of the Lopez Holdings board. The presentations included the action plan on formalizing their risk framework, controls, prioritization and mitigation plans. The top risks of investees FPH Group and ABS-CBN serve as vital inputs to the regular risk management process of Lopez Holdings.
Through continuous monitoring and management, appropriate mitigation strategies were prepared and/or implemented to address the top risks evaluated by the company to be the most significant and/or most likely, as follows:
Customer (Stakeholder) wants/satisfaction risk
Requirements of Lopez Holdings stakeholders vary and the company may be unable to meet all requirements in a timely manner. Regulators require compliance with rules and regulations; creditors require the settlement of all obligations; shareholders require a fair return on their investment; associated companies require financial and other forms of support; senior management requires current and accurate information on groupwide operations; employees require compensation and benefits.
With total debt at a manageable level since 2011, this risk has been greatly reduced. Lopez Holdings adequately served the needs of shareholders, employees, creditors, associated companies, regulators and senior management in 2014.
Business interruption risk
Prolonged interruption in operations may stem from disasters such as earthquake or fire that may damage office premises.
As part of safety measures, employees are regularly trained on disaster risk reduction and emergency response (see section on Employee Wellness and Safety). Off-site information systems are in place to ensure continuous operations from remote or mobile locations should the situation require.
In 2014, the following risks were deemed to be less significant and/or less likely:
Capital availability or cash flow (liquidity) risk
This refers to the company’s exposure to the risk of lower returns on its investments or the necessity to borrow due to shortfalls in cash or expected cash flows, or variances in their timing. There is risk that cash flows from dividends and asset sales may not come in as expected. The outstanding obligations of Lopez Holdings is deemed manageable with respect to required interest payments.
Foreign currency exchange risk and foreign currency revaluation risk
Volatility in foreign currency exchange rates may expose Lopez Holdings to economic and accounting losses related to direct and indirect obligations. Extraordinary fluctuations in foreign currency exchange rates may affect reported operational profits and deficit, potentially reducing the ability of associated companies to declare dividends. The company’s restructured foreign currency-denominated debt of US$23 million is deemed manageable. It is also monitoring the mitigation plans of associated companies in relation to foreign currency revaluation risk.
Interest rate risk
Fluctuations in interest rates may affect the company’s capital availability or cash flow risk as they expose the company to variable cash requirements in relation to debt with floating interest rates. This risk was considered less significant in 2014 given the manageable level of company debt, as well as the fixed rate on long-term debt.
Lopez Holdings has advances in associated companies but these comprise less than 5% of assets. Trade receivables refer to accounts under ABS-CBN, which are managed at the ABS-CBN level. Lopez Holdings does not offer credit terms for the provision of services as a holding company.
Capital management risk
The company has no material commitments for capital expenditures and has not made any major investments since 2013.