MKH Annual Report 2017

Risk Management And Internal Control Processes (continued) • The RMC was established to review and monitor Group’s risk management framework and activities. The RMC includes the Chief Financial Officer, the Chief Treasury Officer and the head of the key business unit. The RMC reports to the Audit Committee on a quarterly basis where key risks and mitigating action are discussed and implemented. • The head of business unit to follow-up on those potential risks identified and the management action plans to mitigate such risks based on the findings from Internal Audit Reports prepared by our in-house Internal Audit team and approved by the Audit Committee. Any significant findings of non-compliance or implementation by respective business units will be reported to the Audit Committee during quarterly meeting. Risk Management Framework The Board recognises that an effective risk management framework will allow the Group to identify, evaluate and manage risks that affect the achievement of the Group’s business objectives within defined risk parameters in a timely and effective manner. The Group is exposed to operational risks and various financial risks as follows:- (a) Operational Risks Operational risks arise from the execution of the Group core businesses (i.e. property development and construction, plantation, investment property and hotel and trading) and competencies of the management in managing the risks relating to health and safety, quality, inadequate skilled workforce and adverse climatic conditions. The management is guided by approved standard operating procedures and quality controls to ensure that all business units are functional. The Group continue to offer competitive compensation that is benchmarked against the best performing companies in the same industry, and rewards framework that is closely linked to employees’ performance to attract and retain a skilled workforce to meet existing and future needs. The plantation division emphasise on good agricultural practices to ensure high production yields of fresh fruit bunches. (b) Financial Risks (a) Credit and liquidity risks arise from the inability to recover debts in a timely manner which may adversely affect the Group’s profitability, cash flow and funding. In order to minimise such exposures, tightening of credit control, close monitoring of collections and overdue debts were carried out. (b) Interest rate risk arise mainly from the Group’s borrowings in the form of term loan, overdraft and revolving credit facilities to meet capital expenditures and working capital requirements. (c) Commodity risk arises from the volatility of commodity prices such as crude palm oil (“CPO”) and palm kernel which are affected by factors such as weather, government policies, supply and demand, and competition from substitution products as well as currency fluctuation. 67 MKH Berhad • Annual Report 2017 Statement on Risk Management and Internal Control