OPERATIONAL RISK 02 Description Operational risk refers to the potential for financial loss due to weaknesses in internal controls, breakdowns in processes, human error, system failures, or external factors. These risks create uncertainties and challenges that a company faces while executing its day-to-day operational activities within the industry. • Manual and labour-demanding aspects of our operations. • Prioritising vigilant cost management and enhancing service efficiency to safeguard margins and optimise cash flow. • Committed to fostering a safety-first mindset and maintaining constant vigilance over our work environment to uphold compliance with Health, Safety, Security and Environment (“HSSE”). • Unanticipated circumstances impacting Edgenta’s operations due to factors beyond our control, including inflationary pressures, minimum wages, geopolitical tensions, supply chain disruptions, interest rate fluctuations, and other external variables. Context • Continuous enhancement of operational processes and embedding the use of technology and digitisation to improve overall operational efficiency and productivity. • Proactive cost management initiatives in place to uphold strong fundamentals and safeguard margins amid evolving market conditions. • Dedicated implementation of occupational HSSE programmes designed to strengthen UEM Edgenta’s safety culture and foster a proactive approach to workplace safety, benefiting both our employees and the environment. • Close monitoring of unanticipated circumstances and their impact with a continuous review of the Group’s business strategies to ensure operational resilience and adaptability in the dynamic operating landscape. • Business Continuity Plans are in place for effective response to enable continuous operations and delivery of critical services in anticipation of any potential business disruption. Mitigation FINANCIAL RISK 03 Description Financial risks are threats that directly impact the Group’s financial performance and cash flow stability, with the potential to affect its overall fiscal health and liquidity position. • Declining margins and profitability driven by increased competition and rising operating costs. • Delayed payment collection from customers for trade and other receivables, hindering effective cash flow management and liquidity. • Rising interest rates, reflecting central banks’ tightening of monetary policy to address various economic challenges, are impacting the financial landscape. • Exposure to foreign exchange risk arises from potential fluctuations in exchange rates relative to local currencies, which can impact financial transactions, as well as the value and future cash flows of financial instruments. Context • Emphasise cost management and margin preservation through cost optimisation strategies, leveraging on technology, and promoting operational excellence to drive greater work and cost efficiencies. • Utilise Enterprise Resource Planning (“ERP”) to streamline financial data and processes across our companies, improving spending analysis, strategic sourcing and cost control, while improving visibility of expenditures. • Actively manage credit risk through comprehensive credit evaluations and vigilant monitoring of customer recovery procedures and receivables. • Continuous monitoring of interest rates by strategically balancing fixed and floating rate debts for effective cost management. • Employing a natural hedge strategy by securing borrowing in the same functional currency as the anticipated revenue stream from overseas entities. Mitigation Key Risks and Mitigation STRATEGIC REVIEW UEM EDGENTA BERHAD 68 Integrated Annual Report 2024
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