2019 UEM Edgenta Annual Report

52 53 UEM Edgenta Berhad UEM EDGENTA AT A GLANCE MESSAGE FROM OUR LEADERSHIP STRATEGIC FOCUS OPERATIONAL REVIEW SUSTAINABILITY EFFORTS CORPORATE GOVERNANCE INTRODUCTION FINANCIAL REVIEW ADDITIONAL INFORMATION Annual Report 2019 Key Risks and Opportunities FINANCIAL RISK COMPLIANCE / REGULATORY RISK Context: We are exposed to financial risks such as credit and foreign exchange fluctuation, which arises primarily from trade and other receivables. Credit risk refers to the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligation. Foreign exchange risk refers to the risk that the fair value or future cash flow of a financial instrument will fluctuate due to changes in foreign exchange rates against Malaysian Ringgit. Context: We take cognisance that our sizeable businesses are concession in nature, operating in various industries, especially Healthcare Support and Infrastructure Services that are subject to a broad range of rules and regulations. Any adversities could result in the suspension of necessary authorisations, licences and rights. A lack of regulatory certainty impacts our operations, reputation and investment decisions. Mitigation: We control credit risk by carrying out stringent credit evaluations and monitoring procedures on customers and receivables respectively. We leverage on technology to keep track of receivables, status and prompt customers the amount due. In mitigating foreign exchange risk, we maintain a natural hedge to the extent possible, by borrowing in the same currency as the future revenue stream to be generated from the overseas entities. Mitigation: With our cross-industry experience, we are well- positioned to meet the strategic needs of our clients and value-add, even in concession businesses. We make a concerted effort to deliver quality services to our clients with strict adherence to service level performance. We have dedicated functions such as Compliance, HSSE, Quality Assurance / Quality Control, and Secretarial to monitor regulatory and policy developments, liaise with relevant governing authorities to stay abreast of regulatory changes and our obligations. To ensure work culture excellence among employees with strong morals and ethics, these are the initiatives in place: • Setting up Integrity & Compliance Function under the requirement of Prime Minister’s Directive No 1. of 2018. • Develop and implement the policies and procedures in relation to integrity and governance (i.e. Code of Conduct, Anti-Bribery & Anti- Corruption Guide, Conflict of Interest Procedures, Compliance Framework, etc.). • Whistleblowing reporting channel, policies and procedures. Compliance / regulatory risk is exposure to legal penalties, financial forfeiture and material loss an organisation faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices. Financial risks are those which directly relate to financial controls and performance. Key Risks and Opportunities MARKET / INDUSTRY RISK OPERATIONAL RISK Context: • The operational nature of our business (which tends to be deprioritised as a strategic business imperative by clients / potential clients in price sensitive industries). Service commoditisation lead to competitive price. • Challenging first half for the Malaysian infrastructure industry. We are cautiously optimistic of its prospects on the back of announcements on continuation of several key infrastructure projects by the Government. Mitigation: In disrupting our delivery model, we adopted a differentiated approach to drive growth, innovation and efficiency. We are leveraging on the Industrial Revolution 4.0 wave: • Early adoption of artificial intelligence and machine learning, automation & mechanisation. • Productisation of technology solutioning. To broaden income streams, we are looking into: • Cross-selling and sharing of best practices between Healthcare Support Concession and Commercial businesses. • Securing higher quality revenue particularly in the industrial sector. • Securing new contracts with efficiency-based elements in the expressway maintenance business and seeking further long-term growth opportunities in Malaysia and Indonesia. Mitigation: Continuous efforts to increase efficiency in achieving operational excellence and sustainably improve our margins through: • Optimising the margins of newly secured contracts through an outcome driven delivery model, with efficiency-based elements and performance-based incentives schemes. • Differentiate our service offerings via in-house development of technology solutions. • Roll-out operational initiatives, including LEAN programmes for process improvements and the Innovation Garage to tackle high-impact problem statements. We maintain a safe and healthy work environment to protect our people, business partners and other stakeholders. To mitigate work-related HSSE risks: • Continuously promote the “Goal Zero” aspiration to drive disciplined and consistent execution of the basics and compliance with safety standards, in line with the theme “Comply”. • Drive innovation initiatives by introducing new technology to keep our employees and users safe, through Innovation Garage. There is a risk that we do not take advantage of, or are overtaken by changes in our industry. This could lead to loss of market share, loss of revenue and reputational damage. Context: More than 80% of our employees are blue-collared workers and the working conditions – especially in healthcare, infrastructure and property management involving project construction sites, plants, hospitals, highways and high-rise buildings, among others. Our continuing challenges are: • Focusing on cost stewardship and service efficiency improvements to protect margins and improve cash flow. • Manual and labour-intensive aspects of asset management. • Inculcate a ‘safety-first’ mindset and to continuously monitor our working environment to ensure we comply with HSSE standards. Operational risk relates to the risk of losses resulting from uncertainties and hazards a company faces when it attempts to do its day-to-day business activities within the industry.