37
HG METAL MANUFACTURING LIMITED
ANNUAL REPORT 2014
CORPORATE
GOVERNANCE
7
MATERIAL CONTRACTS
Save as disclosed in the audited financial statements of this Annual Report, there are no material
contracts of the Company or its subsidiaries involving the interest of the Executive Director, directors
or controlling shareholder subsisting at the end of the financial year ended 31 December 2014 or
have been entered into since the end of the previous financial year.
8
RISK MANAGEMENT
Management regularly reviews the Group’s business and operational activities to identify areas of
significant business risks as well as deliberate on appropriate measures to control and mitigate these
risks. Management is accountable to the Board for ensuring the effectiveness of risk management
and adherence to risk appetite limits.
On a day-to-day basis, business units have primary responsibility for risk management. The various
business units provide the senior management with a timely assessment of key risk exposures and
the associated management responses. These units also recommend risk appetite and control limits.
The significant risk management policies are as disclosed in the audited financial statements of this
Annual Report. The financial and operational risk management policies are outlined below:
Fluctuations in steel prices
As a distributor of steel products, the Group purchases a wide range of steel products and maintain
substantial inventories to be in a position to fulfil customers’ orders within a short lead time. The
cost of steel products purchased is the main component of the Group’s cost of sales for its steel
distribution business. Prices of steel products are subject to international price fluctuations of steel.
Therefore, the Group is vulnerable to any fluctuations in prices of steel.
The Group, with more than 30 years of knowledge and expertise gained in this line of business,
is able to make appropriate adjustments to its supplier choice, timing of purchase and shipment,
contracting arrangement with its customers to address price fluctuation risk.
Credit risk of its customers
The Group extends credit terms ranging from 30 to 90 days to its customers, depending on their
credit worthiness. From time to time, in the ordinary course of business, certain customers may
default on their payment. Such events may arise due to the inherent risk from its customers’ business,
risk pertaining to the political, economic, social and legal environment of its customers’ jurisdiction
and foreign exchange risk. In the event that the Group’s customers default on their payments, the
Group would have to make allowances for doubtful debts or incur write-offs, which will have an
adverse impact on its profitability.
