p.72 UEM EDGENTA BERHAD INTEGRATED ANNUAL REPORT 2022 RISKS AND MITIGATION The Group remains vigilant in managing risks and is mindful of the presence of risks in our business 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 performance, 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 their 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 a significant 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. Details of our risk management framework and control processes can be found on pages 237 – 245 under the Statement on Risk Management and Internal Control of this Integrated Annual Report. p.73 1 2 3 4 5 6 7 8 9 MANAGEMENT DISCUSSION & ANALYSIS RISKS AND MITIGATION Context • Our presence in the countries where we operate exposes UEM Edgenta to economic, regulatory, political, and social development conditions that could impact our strategy and operations • T he operating landscape continued to be competitive with our customers, comprising existing, new and potential, shifting their focus requirements from traditional services requirements to value-adding services encompassing technology, performancebased model, and sustainability • The 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 pricing • Margin compression in the market continues to pose challenges to growing our revenue stream and maintaining a healthy order book • T he pandemic and resulting response (i.e., MCOs) were challenging for the Malaysian infrastructure industry due to the deferment of higher-value infrastructure projects, which are now making a comeback following the transition to the endemic phase Mitigation • Expansion and broadening of the addressable market to diversify revenue streams through Pan-Malaysia Strategy, regional expansion, and new adjacency sectors • D eveloping and deploying technology solutions to set new benchmarks and enhance service delivery in the healthcare and infrastructure sectors • P roductisation and scalability of existing sector technology solutions to current and potential clients • Continue focus on cost optimisation initiatives, driving organisational efficiency and increasing competitiveness via product and technology proposition • C ross-selling, expanding client base and new delivery model via performance-based contracting in addition to sustaining existing concession businesses Risk Description Strategic risks are risks related to the fundamental decisions that the Board and the Management take concerning UEM Edgenta’s objectives and potential exposure to the changing market environment and industry demands which could affect UEM Edgenta’s business strategy and growth. Essentially, strategic risks are the risks of failing to achieve these business objectives. The risks evolve the market environment, inclusive of industry uncertainties or emerging issues that could impact our strategy, performance (i.e., market share and growth), shareholders’ value, or even reputational damage. Strategic risks are often risks that UEM Edgenta may have to take in order to expand its business and even to continue in the long-term. Context 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 • Unanticipated circumstances impacting Edgenta’s operations due to factors beyond our control such as the COVID-19 pandemic, wages concerns, inflationary pressures, supply chain disruptions, and geopolitical tensions 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 • I mplementation of occupational HSSE programmes designed to improve UEM Edgenta’s safety culture • Close monitoring of unanticipated circumstances and their impact, with a continuous review of the Group's strategies to ensure operational sustainability • Business Continuity Plans are in place for effective response to enable continuous operations and delivery of critical services in the event of any business disruption Risk Description Operational risk is the risk of loss resulting from inadequate internal controls 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-to-day business operational functions within the industry. Context Our continuing challenges are: • R educed margins and 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., a 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. 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 • D iligently manage credit risk by undertaking credit evaluations, and 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 Risk Description Financial risks are risks that will directly impact the Group’s financial performance and cash flow. 2 OPERATIONAL RISK 3 FINANCIAL RISK 1 STRATEGIC RISK
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