5.0 are foreigners. In 2016, the industry still

5.0
Non- Financial Risk

There are
several non-financial risks that encountered by IJM Corporation Berhad.

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i.           
Inadequate
skilled workforce risk

The
shortage of skilled workers in construction industry has become an issue globally.
Nowadays, it has becomes the greatest challenge facing by the construction
industry in Malaysia.

According to New
Straits Time (2016), the President of Master Builders Association Malaysia, Foo
Chek Lee stated that the construction industry in Malaysia is still labor
intensive and most of them are foreigners. In 2016, the industry still faces a
problem which is lack of local skilled workers and cause them need more workers
from the foreign country. Because of the poor local people participation and
rapid development in Malaysia, the construction companies have faced problems
in hiring skilled workers locally and retained skilled workers. Since the local
skilled workers are unable to fulfill the required market demand of
construction, contractors are willing to recruit unskilled and poor educational
background foreign workers from outside to meet the labor market requirement
and needs in construction industry. Since IJM Corporation Berhad (IJM) has a business’s
activities that are similar with other companies, the company has stated the
common challenge which is lack of skilled workers in the construction division.
(Annual Report, 2016)

ii.           
Regulatory
Risks

The
business activities of IJM Corporation Berhad are governed by relevant
regulations, laws, licenses, standards and concession agreements. From the
Annual Report 2016, there are some new laws and regulations which include Goods
and Service Tax and Bursa Malaysia’s new listing rules on sustainability and
corporate governance and Companies Bill 2015 and Companies Act 2016, health, safety
and environmental policy that has been implemented by the government. There might
have a possibility that the company may neglect or overlook some laws and
regulations carry out by the government such as arise new laws or regulations
as the years go or breach of regulations such as non-compliance to the
Companies Acts and health ,safety and environmental policy.

iii.           
Cyber
and IT risk

Based
on the statistics portal in 2017, it shown that Facebook is the most commonly account
being hacked among social media such as Twitter, YouTube and others. It has
reported that there are 66% Facebook users’ account being hacked by hacker.
From the annual report, the company has adopted online social
media, Facebook in business to become more collaborative and effective in the
operating culture of the company. The company is the first public listed
company in Malaysia using Facebook at work as a tool for communication in order
to enhance team productivity, efficiency, collaboration. There are about 4400
employees across 10 offices in Asia, Middle East and Europe is using the social
media service. This will bring the IJM family become closer around the world
and employees are able to work more effective and efficient and get feedback
and response speedy. However, the company may trigger the risk as a result of
leakage of information as well as cyber-attacks. Also, the unauthorized
disclosure of critical business information may arise when the risk left
unattended such as unauthorized person assess to data.

There are several non-financial risks that
encountered by Benalec Holdings Berhad.

i.           
Market
Risk

Recently, the Malaysian government
has frozen the indefinite property developments approval due to the oversupply
of houses as well as to prevent it affecting the economy adversely effective
from 1 November 2017. From the annual report, Benalec has disclosed that there
are several main target markets for the company. One of it is those companies
involved in mixed residential and commercial developments. Thus, the declined
in the demand in mixed residential and commercial developments would affect the
marine construction services demand significantly. This may cause the overall
decline in the market demand. As the market demand cannot form effectively and
lack of market motivation, it will result in significant market risk to Benalec.

ii.           
Delay
in completion of marine construction contracts

Delay is a critical issue in
construction sector. Generally, delay in constructions projects or contracts
has become as one of the most important issued that the construction companies
more concerned. Delays in constructions can arise due to several reasons such
as incidents that cause the work performed later than planned schedule. From
the annual report (2016), Marine construction companies are vulnerable to
several problems such as machinery and equipment breakdowns, weather conditions
as well as unforeseen events that might arise from the project facilities and
employees. In 2016, the company has undertaken several important lands
reclamation works at Tanjung Piai Maritime Industrial Park with
the development costs of around RM142 millions. At the same year, the company
has undertaken the other project on land reclamation and development work at
Pengerang Maritime Industrial Park with 1,672 acres. Thus, there might have the
risk where the marine construction contracts unable to complete on time.

iii.           
Legal
Risk

For a company, legal risk such as
litigation is one of the issues that should be more concerned. Legal risk may
arise when there is a potential loss due to the uncertainty of legal events
which included potential legal lawsuit. The problems arise from lawsuit is
often disclose publicly and will disrupt the business operations of a company.
From the annual report (2016) has highlighted that there is the material
lawsuit between the subsidiaries of the company, Benalec Sendirian Berhad (BSB)
and Sentosacove Sdn Bhd (SSB). BSB has received a Statement of Claim and Writ
of Summons by SSB on 30 April 2015. On 10 September 2010, the SSB has accused
that BSB has violated its implied and contractual duties under a Reclamation
Agreement which was entered into between BSB and SSB on 10 September 2010.
Under the Reclamation Agreement, BSB was appointed as a contractor to carry out
marine reclamation works to reclaim a total area spanning 720 acres in Daerah
Klebang, Melaka.

6.0  Impact of Non-Financial Risks

6.0.1
IJM Corporation Berhad

Inadequate
skilled workforce risk

Due
to the unskilled workers, it may bring some adverse impact to IJM . The poor
quality of work during the construction may affect the overall performance of
IJM. The construction errors may happen frequently as the progress going.
Consequently, the additional construction cost may arise as IJM needs to do
some evaluation, investigate and corrective action such as repaired or redone
on the construction projects. Thus, it might be impede the progress of the
construction progress. Not only that, the poor quality of work can bring some
significant concerns on safety in the construction site such as injury or death
if the structure of the building fails in the construction projects. Thus, IJM
will need to cease construction work. Hence, it may lead IJM has losses as well
as affect the reputation of the company. Therefore, the company has implemented
the use of Building Information Modeling (BIM) in construction projects,
adoption of Industrialized Building System (IBS), offering the training to
build up human capability and hiring the right talents. Thus, it will lower the
impact of the risk.

Regulatory
Risks      

            The
regulatory risks will bring a significant impact to the company. If the company
has breach of rules and regulations in the industry, it will affect the
position as well as performance of the company. When there is a breach of the
laws and regulations, the company will have suffered some liabilities such as
legal penalty and large amount of fines because of not compliance. It is
because breach of the laws and regulations is classified as a criminal offence
which the company may face prosecution by government authorities. If the
company does not pay the penalty, it might have a high possibility that the
company will blacklist by the government. Consequently, there might be the
adverse publicity towards the company which lead to loss of reputation to the
company. Hence, the company has mitigated the risk by liaising with the
government authorities and external authorities. Additionally, the legal
department of IJM provides legal information on compliance with applicable laws
and regulations, including on the manner of contracts, operational and
business.

Cyber
and IT Risk

            The
cyber-attacks may affect the financial condition, performance of the company.
When the company has leakage of the information, it might cause the health of
the financial position being affected. The company will have some financial
losses when the cyber-attacks arise such as steal the corporate information, financial
information which is considered as private and confidential illegally. The
company needs to incur repairing and maintenance costs in order to restore and
repair the system as well as networks of the company. Subsequently, the company
may have reputational damage. The leakage of private and confidential
information could lead the company lose the competitive advantage, disruption
in the business processes and adverse publicity due to poor system managed.
Thus, it will affect the relationship of the company with customers, suppliers
as well as investors. Hence, the company can reduce the risk by cyber security
incident response plan after the risk has occurred that may help our business
recovery in a shorter time.

 

6.0.2
Benalec Holdings Berhad.

Market
Risk

            Since
there is a low market demand in the target market, IJM might face some
unanticipated losses in future with the implementation of this policy. This
will affect the sales of the company due to lower demand in the market as well
as the financial health of the company. It will increase the operating cost of
the company such as leasing payment. From the annual report (2016), the company
has numerous lands for sale and most of them are leasehold land. (Appendix) The
cost of leasing is based on the market rate which cause the company has will
bear more leasing cost as the land vacant over the times. Thus, the company may
mitigate the risk by diversify base of customers to others industries such as
marine and logistics industries, civil industries and others. ??link to demand
and land?

Delay
in completion of marine construction contracts

            There
are some negative impacts on the Benalec business, financial health, and
operation when the company failed to complete the construction contracts on
time. Presume that the company has delayed the progress of the contracts and
unable to complete on time, it will cause the company facing litigation between
contractor and customers. Consequently, it will increase the construction cost
due to loss of productivity. The company will face overrun costs issue as the
company needs to pay legal costs as well as compensation to the customers.
Thus, the company has reduced the risk by managed its equipment and vessels under
a programmed maintenance schedule to prevent them from downtime and breakdown
issue.

Legal
Risk

            If there
has any legal issue arise from the company, there might have some adverse
effects on the company performance such as financial health and business
operation. There might be a huge loss if the company is being sued by the other
party successfully. There will be reputational loss and subsequently reduce the
confidence of shareholders towards the company. There may have adverse
publicity due to legal risk. Since the potential impact on operational or
financial of the business is difficult to anticipate, therefore, the company
may reduce the risks based on legal department of the company by providing
legal information on compliance with applicable laws and regulations, including
on the manner of contracts, compensation as well as impact of losses. Loss
reputational?

 

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