On a day-to-day basis, business units have primary responsibility for risk management. The various
business units provide the key 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 maintains
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.
The Group performs credit check and approval before granting credit to customers and imposes a
credit limit and credit term on each customer. All credit accounts are subject to regularly review.
In addition, the Group is not dependant on any single customer or any single country. In order to
avoid excessive concentration of risk, the Group’s policies and procedures include specific guidelines
to focus on maintaining a diversified portfolio. Identified concentration of credit risks are controlled
and managed accordingly.
Foreign exchange exposure
The purchases and sales of the Group are mainly denominated in United State Dollar (“
USD
”). As a
result, the Group is exposed to fluctuations in foreign exchange rates. For the financial year ended 31
December 2015, approximately 87% of its total purchases were made in USD, whilst approximately
46% and 54% of its total sales were denominated in Singapore Dollar (“
SGD
”) and USD respectively.
Hence, the Group may be exposed to any significant fluctuation of the USD.
37
HG METAL MANUFACTURING LIMITED
ANNUAL REPORT 2015
CORPORATE
GOVERNANCE
