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COSCO Corporation (Singapore) Limited
RISK
MANAGEMENT
MANAGING COST OF WAGES THROUGH
OUTSOURCING
Ship repair is a labor-intensive industry and an
increase in wages will have a significant impact
on the Group. The Group had been encountering
increases in labor cost. Other than having a
permanent work force of skilled employees on
the payroll, the Group has adopted a contract
hiring system, unskilled manpower is hired on a
contractual basis and paid according to projects
undertaken. While the Group has benefited from
the decrease in fixed costs, it is a risk from failure
by these third parties to deliver on their contractual
commitments, which may adversely impact its’
reputation and performance.
3. EXECUTION RISKS
Execution risks arise from the implementation
of the Group’s strategy and its change and
investments program, which aim to enhance long
term shareholders’ value.
INVESTMENT, ACQUISITION AND DISPOSALS
Risks inherent in the investments, acquisition and
disposals may have an adverse impact on the
Group’s business or financial results.
From time to time, the Group may make
investments, acquisitions and disposals of
businesses. While these are carefully, planned,
the rationale for them may be based on incorrect
assumptions or conclusions and they may not
realise the anticipated or unintended effects.
Additionally, while the Group seeks protection,
for example through warranties and indemnities,
significant liabilities may not be identified in due
diligence or come to light after the warranty or
indemnity periods. These factors may materially
and adversely impact the performance or financial
condition of the Group.
4. FINANCIAL RISKS
The Group is exposed to market risks such as
interest rate and exchange rate risks arising from
its international business. The PRC government
continuous property cooling off measures and
shadow banking activities have caused liquidity
crunch and forced commercial banks to tighten their
lending policy. As a result, borrowing costs surged
across the board.
At the same time, the appreciation of value of
Renminbi against the US dollar and other major
currencies have also poised uncertainties to the
Group’s operations.
MANAGING CURRENCY FLUCTUATION
The main financial risks facing the Group are
fluctuations in foreign currency, interest rate risk,
availability of financing to meet the Group’s needs
and default by counterparties and customers. Any
of these financial risks may materially and adversely
impact the Group’s business, financial condition,
results of operation and prospect.
The Group has established a management system
to address financial risks. Fluctuations in currency
exchange rates are closely monitored. The Group at
its discretion may employ simple forward hedging
on a systematic approach to meet its financial
obligations and both foreign and local currencies
needs.
The Group does not engage in speculative foreign
investments. Strict compliance controls are in place
to ensure that procedures are adhered to and
management decisions are not made unilaterally.
The Group also engaged the guidance of the holding
company in managing its foreign exchange risk
exposure. The holding company has an experienced
Treasury operations team responsible for managing
the funding requirements and liquidity risks.
A detailed disclosure of the Group’s financial risks
can be found on pages 131 to 138 in the Notes to the
Financial Statements.
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