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RISK ON ECONOMIC ENVIRONMENT:

Economic environment risk is the chance that macroeconomic conditions like exchange
rates, government regulation, or political stability will affect an investment, usually one in a
foreign country. This economic environment risk involved in each of UMW Holding Berhads
core business activities such as automotive, equipment, manufacturing & engineering and oil &
gas.
According to UMW Holding Berhads automotive, equipment, manufacturing &
engineering and oil & gas segment, the risk associates to a softer economic environment affects
demand for new vehicles, new equipment purchases or leases, manufacturing of products in the
aerospace and automotive industries and oil & gas prices as buyers will be wary of making
substantial commitments. It means the market that has more potential sellers than buyers that
effects the purchasing and supplying power of UMW Holding Berhad.
Besides, the automotive sector to remain challenging in the 2017 as consumer sentiment
may remain soft, especially for items such as vehicles and property. It is because of the persistent
weakness in the MYR has low margins as companies ability to pass on the higher costs to
consumers are limited by low demand and stiff competition.
Moreover, equipment segment of UMW Holding Berhad registered lower revenue and pre-
tax profit of 2016 due to lower equipment sales especially sales of heavy equipment amid a
slowdown in the mining sector particularly in Myanmar and stiff competition in the construction
sector. The continual slowdown in mining sector may lead and affects the expected revenues and
pre-tax profit of 2017.
Furthermore, the Manufacturing & Engineering segment registered a revenue of RM152.6
million in the current quarter, RM34.6 million or 18.5% lower than the RM187.2 million reported
in the same quarter of 2015. Profit before taxation was also lower at RM4.0 million, a decrease of
RM 9.9 million from the RM13.9 million profit before taxation in the same quarter of 2015.
Lubricant business was adversely affected by market sentiments in the automotive industry
coupled with competition from other brands. Therefore, the sustainability of the lubricant business
in the market is medium even though the bigger amount of revenue in 2016 decreased compared
to the amount of revenue produce in 2015 while the impact the company revenue is quite high.
Moreover, according to oil & gas segment, UMW Holding Berhad is planning to exit the
O&G sector because of the continual weakness in oil prices may further devalue the segments
assets leading to further asset impairments going forward. A weak oil environment may also
adversely impact the selling price of the assets. The losses in the Oil & Gas segment will affect
the UMW Holding Berhad profitability. This causes the expected revenue and the expected profit
before tax will decrease and will lose one of its UMW Holding Berhad core business identity in
oil & gas sector. The recovery of the oil & gas industry may take much longer than expected and
the slow recovery will result in the oversupply of drilling rigs becomes higher competition and
reduce the margins of the company.

RISK ON NEW VENTURE

In the new venture, there are two main sources of risk in a new venture which are the risk
due to uncertainty surrounding the business and the risk due to what is at stake if the business
should fail. UMW Holding Berhads manufacturing & engineering segments venture into the
aerospace field is new and may potentially experience unforeseen challenges. While all efforts
have been made to ensure the ventures smooth operations, there may remain unforeseen
teething issues. UMW Aerospace Sdn Bhd, signed the 25-year agreement, with an option to
extend another five years, with Rolls-Royce and it is the first Malaysian-based company to become
a Tier-1 supplier to Rolls-Royce. The example of risk that may occur are the higher-than-expected
start-up losses at its new aerospace venture and its aerospace component manufacturing venture
has long-term potential but is unlikely to be profitable until 2019.
RISK APPETITE

Risk appetite can be defined as 'the amount and type of risk that an UMW Holding Berhad is
willing to take in order to meet their strategic objectives.

Economic Environment

This economic environment risk involved in each of UMW Holding Berhads core business
activities such as automotive, equipment, manufacturing & engineering and oil & gas. Somehow,
the economic environment risk is unavoidable risk because it involved uncountable factor which
is fluctuation of Ringgit Malaysia (RM) currency. However, UMW Holding Berhad may have
contingency plan in order to overcome the risk consequences.
According to automotive, equipment and manufacturing & engineering sector, UMW Holding
Berhad will take the economic environment risk as risk appetite in order tolerable and justifiable
to the threats and obtain the benefits from the opportunity that arise from the risk. The continuous
decreasing in amount of expected sales, revenue and profit before tax are the threats for the UMW
business activities. Besides, the threats for the oil & gas sector is continual weakness in oil prices
which became unavoidable risk because of the weakness in Ringgit Malaysia (RM) currency. As
a contingency plan, UMW Holding Berhad decided to exits the unlisted oil & gas sector in order
to minimize their cost. The opportunity that arise from this risk for oil & gas sector is null. It is
because by continuing the business operation may increase loses for the upcoming years which
will affect the profitability of the company.

New venture

The threats that involved in the new venture risk as their risk appetite for its manufacturing &
engineering segment are the higher-than-expected start-up losses at its new aerospace venture and
unprofitable for short-term. The opportunity is the successful execution of the new aerospace
manufacturing contract for Rolls Royce could open up new manufacturing opportunities.
ADDRESSING RISK

Economic environment
o Treat
The risk associate to automotive, equipment and manufacturing & engineering sector of
UMW Holding Berhad can be treatable by implementing preventive controls which is by
improving their marketing strategic in order to gain high customer sentiment and demand for
UMW product for each of their business activities.
o Terminate
The risk associate to oil & gas sector, can terminate by exits the oil & gas sector in order
to minimize their cost and loses that affected the profitability of UMW Holding Berhad.

New Venture
o Tolerate
The risk associate to the manufacturing & engineering segment is tolerable without any further
action being taken. It is because even though new venture in new aerospace is unprofitable for
short-term but it is profitable for long term and successful execution of the new aerospace
manufacturing contract for Rolls Royce could open up new manufacturing opportunities.