Wah Seong Corporation Berhad Annual Report 2019

187 ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 46 FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) Fair value hierarchy (continued) Level 1 Level 2 Level 3 Total Company RM’000 RM’000 RM’000 RM’000 2019 Financial assets Short term investments - 623 - 623 2018 Financial assets Short term investments - 609 - 609 47 CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital structure in order to continue supporting its businesses, maximise shareholders’ value and sustain future development of businesses within the Group. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as loans and borrowings less time deposits, cash and bank balances. Total capital includes paid-up share capital and reserves attributable to owners of the Company. The Group’s net gearing ratio is 0.82 times (2018: 0.64 times). The Group has also complied to all externally imposed debt covenants. 48 SUBSEQUENT EVENT Due to a significant worsening of the macroeconomic outlook as a result of Covid-19 and sharp decline in crude oil prices, both domestically and globally, the Group and the Company, based on preliminary assessment, expect that the current situation if prolonged, will have adverse financial impact to the Group’s and the Company’s results for the financial year ending 31 December 2020. This is mainly due to: • Disruptions to business operations resulting from quarantines of employees, customers and suppliers in areas affected by the outbreak and closures of operational plants and facilities; • Decrease in sales in the near term due to reduced economic activities and delayed fulfilment; • Increase in expected credit losses due to delays in payments by certain trade and other debtors and amount owing by joint ventures; and • Some impairment of non-current assets (for example, goodwill, property, plant and equipment, right-of-use assets and investment in associates and joint ventures) due to idle capacity and negative market outlook The Group and the Company expect that they have sufficient funds from operations and/or drawdown of funds from available credit facilities for the next 12 months. The Group and the Company are formulating and implementing various strategies and measures including but not limited to drastic cost reduction and rationalisation programmes to counter the adverse financial impact arising from the extremely challenging economic and business environment. The Directors believe such measures will enable the Group and the Company to weather through this turbulent time. The Directors are monitoring the situation closely and will continue to assess the impact on the Group’s and the Company’s operations and performance as the situation develops and take appropriate action to mitigate the impact as much as possible.