SCC Holdings Berhad Annual Report 2018

SCC Holdings Berhad | Annual Report 2018 10. ANTICIPATED OR KNOWN RISKS Foreign Currency Exchange Fluctuation The Group is exposed to currency exchange fluctuation as most of the Group's purchases are denominated in foreign currencies such as US Dollar. In order to minimise exposure to significant fluctuations in the RM to USD, the Group hedges through foreign exchange forward contracts. Besides that, the risk is also mitigated through natural hedge between sales and purchases in USD, albeit to a limited extent. The Management will continue to closely monitor our foreign exchange exposure by keeping abreast of the economic and political situations of the countries that we deal with. Exposure to Credit Risk TheGroup's exposure to credit risk arises primarily from trade receivables. It is the Group's objective to seek continuous revenue growth while minimising losses from impairment and bad debts by assessing and approving credit terms on a case-by case basis after taking into account customer's payment track record, financial standing and length of business relationship and size of transaction. Our collections from customers are closely monitored on an on-going basis by the credit control committee. Impact of Sales and Service Tax (SST) Many of our imported products are subject to SST and thus increase our cost of goods sold. Many of our domestic suppliers and trade partners are also bound to charge us SST e.g. transports and forwarding service etc. We are closely monitoring how much the impact of the SST would affect our bottom line and always in discussion with our business partners on how to mitigate the impact for win-win situation. FUTURE PROSPECTS AND OUTLOOK The Ministry of Finance (MoF) has forecast a growth rate of 4.9% for Malaysia next year, supported by sound domestic demand. According to the MoF's Economic Report 2018/19, titled Fiscal Outlook 2019 , the private sector expenditure is expected to remain as the key driver of Malaysia's economic growth, cushioning the effects of lower public sector spending in 2018 and 2019. However, the country is still being challenged by rising external headwinds, namely uncertainties coming from the ongoing trade tensions between the US and China, and also from the European Union (Brexit). Nevertheless, the strengthening of the Ringgit against the USD in recent months could bring some relief to the Group as most of its supplies are transacted in USD. A proposal by Malaysian Agriculture and Agro-based Industry that colistin (a type of antibiotic) to be banned in animal feed from 1 January 2019, could provide opportunities for AHPD to grow as we are a total antibiotic- free company. For SCCFM, we are in advance stage of development of new recipe for new product and markets where we foresee would contribute significantly in the mid to long term time frame. We have established a wholly own subsidiary in Cambodia to cater for the Foodservice industry in the country. Initial contribution will be insignificant but there is great business potential in the long term. The Group despite the challenges it faces will continue its effort to align its business strategies and speed up diversification in order to mitigate the effects of rapid changing business environment. The Board of Directors would exercise extra caution in conducting their duties during these periods and are optimistic of the Group’s long term prospect. MANAGEMENT DISCUSSION AND ANALYSIS (cont’d)