Serba Dinamik Annual Report 2021

Section 5 | Management Discussion & Analysis 142 From this segment, our margins are affected by thedirect costof operationswhichmainly includes consumables, services provided by suppliers which include a combination of mechanical, electrical and/or instrumentation work, wages and salaries, and professional fees, purchases of materials such as machine and equipment parts, tools and equipment. The above cost depends on the nature of the contracts and the need of the customers. Contribution revenue derived from this segment depends on a specific project or work order for contractswhich canbe impairedby several factors such as delays in accessing a site, work delays due to geotechnical conditions or variations at site, delay in delivery of materials and parts sourced from overseas, for which may not be within our control. We are exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of our Group entities as we do not use any hedging instruments in our daily operations. Significant changes in foreign exchange rates may affect our performance favourably or unfavourably. Based on our current practices and policies, we constantly review our procurement compare to market prices and conditions. Bulk-orders and timely procurement are one of our ways to reduce costs. We were also appointed by MITI as a Vendor Development Anchor company thus enabling us to create our own Vendor Development Program ("VDP"). We actively engage with our vendors and suppliers to ensure efficiency and cost reduction on both sides in a manner that helps us manage our costs and helps our vendors grow. Our experienced project management team will conduct periodic reviews with our customers during the entire phase of a projects/contracts, and this will also address the issue of delays. By continuing meetings with our customers' management to monitor progress constantly and manage our customers' expectations, work progress and be proactive in addressing any anticipated issues that may arise. Our revenue from overseas projects/contracts is typically denominated in USD. We maintain our cash inflow in a USD denominated bank account, where it will be used to settle the portion of our cost of operations payable in USD. This provides us with a natural foreign currency hedge. Nonetheless, any unfavourable movements in the USD exchange rate may adversely affect our profitability. Challenges Our Respond FINANCIAL PERFORMANCE