UEM EDGENTA BERHAD ANNUAL REPORT 2021 1 2 3 4 5 6 7 MANAGEMENT DISCUSSION & ANALYSIS 59 58 KEY RISKS AND MITIGATION KEY RISKS AND MITIGATION The Group remains vigilant in managing risks and are mindful of the presence of risks in our decisions and activities. As such, effective risk management is important in managing our risk exposure whilst pursuing our strategic and business objectives successfully. Risks, inherent to our business, as well as external risks are identified and managed through our robust risk management framework. Going beyond compliance, we adopt policies, principles and practices which help to minimise our risk exposure, maximise our performance and provide greater certainty and strengthen stakeholders’ confidence. We see risks as opportunities to strengthen our internal controls, compliance procedures and management strategies. The risks identified are mapped against the likelihood of occurrence and potential business impact. The principal risks described below, whilst not exhaustive or in any order of priority, are those which we believe could have the greatest impact on our business. The Board regularly reviews these risks in the knowledge that currently unknown, non-existent or immaterial risks could turn out to be significant in the future. Risk Description Market/Industry (Strategy) Risk Market/Industry (Strategy) risk relates to potential exposure to the changing market environment which could affect UEM Edgenta’s business strategy and growth. Evolving market environment, inclusive of industry uncertainties or emerging issues could impact our strategy, performance (i.e., market share and growth), shareholders’ value or even reputational damage. • 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 leads to competitive prices. • Margin compression in the market continues to pose challenges to growing our revenue stream and maintaining a healthy order book. • The pandemic and the resulting response (i.e., MCOs) were challenging for the Malaysian infrastructure industry due to the deferment of higher-value infrastructure projects. Context Mitigation • Expansion and broadening of the addressable market to diversify revenue streams through the Pan-Malaysia Strategy, regional expansion and new adjacency sectors. • Developing and deploying technology solutions to set new benchmarks and enhance service delivery in the healthcare and infrastructure sectors. • Productisation and scalability of existing sector technology solutions to current and potential clients. • Continued focus on cost rationalisation initiatives, driving organisational efficiency and increasing competitiveness via product and technology proposition. • Cross-selling, expanding client base and new delivery model via performancebased contracting in addition to sustaining existing concession businesses. Risk Description OPERATIONAL RISK Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events which include uncertainties and hazards a Company faces when it attempts to undertake its day-today business operational functions within the industry. Our continuing challenges are: • Manual and labour-intensive aspects of operations. • Focusing on cost stewardship and improving service efficiency to protect margins and improve cash flow. • Inculcating a safety-first mindset and continuous monitoring of our work environment to ensure compliance with HSSE standards. • Curtailing the spread of the COVID-19 pandemic and the increase in operating costs to implement COVID-19 precautionary and safety measures. Context Mitigation • Continuous enhancement of operational processes and embedding the use of technology and digitisation to improve overall operational efficiency and productivity. • Manage cost and preserve margins by keeping fundamentals strong. • Implementation of occupational HSSE programmes designed to improve UEM Edgenta’s safety culture. • Established safety and precautionary measures across all our operations to mitigate the risk of COVID-19 infection. • Business Continuity Plans are in place for effective response to enable continuous operations and delivery of critical services in the event of crisis and business disruption. Risk Description FINANCIAL RISK Financial risks are risks that will directly impact the Group’s financial performance and cashflows. Our continuing challenges are: • Reduced margins & profitability amid higher competition and an increase in operating costs. • Delayed collection from customers for trade and other receivables which could impede cash management. Foreign exchange risk, i.e., risk that the fair value or future cash flow of a financial instrument will fluctuate due to changes in foreign exchange rates against the Malaysian Ringgit. Context Mitigation • Focus on managing cost and preserving margin through tighter cost controls, leveraging technology and operational excellence to derive work and cost efficiencies. • Leverage on Enterprise Resource Planning (“ERP”) to streamline financial information and processes across our companies, improve spending and strategic sourcing analysis, as well as cost control and increase the visibility of spending. • Diligently manage credit risk by undertaking credit evaluations, monitoring recovery procedures by customers and receivables respectively. We keep the Company’s balance sheet healthy with a low gross gearing ratio and strong net cash position. • Maintain a natural hedge by borrowing in the same functional currency as the future revenue stream to be generated from the overseas entities. Details of our risk management framework and control processes can be found on pages 150 to 159 under the Statement on Risk Management and Internal Control of this Annual Report.
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