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BAKER TECHNOLOGY LIMITED ANNUAL REPORT 2012
BAKER TECHNOLOGY LIMITED ANNUAL REPORT 2012
A L REP RT 2012
RiskManagementandMitigation
Whilst playing an active role in society, Baker Tech
also values the need to balance financial sustainability.
Managing risk is explicitly on themanagement’s agenda
andmitigation strategiesareconsistentlybeing reviewed.
Given the volatility of the oil and gas industry, coupled
withunpredictable changes in theeconomyandbusiness
environment, it is increasingly clear that a need exists
for a robust enterprise risk management framework.
This aims to ensure that the Company identifies and
effectivelymanages risks and that its strategic objectives
are achievedwhilst complyingwith internal and external
controls.
Industry- RelatedRisks
Sea Deep, the Group’s key subsidiary, faces a myriad
of risks in today’s global marketplace as it manufactures
and specialises in engineering components for the
offshore marine oil and gas industry. These risks range
from the volatile commodity prices linked to economic
activity and the sensitivity to demand and supply of oil
and gas price factors.
To successfully mitigate these risk factors, Baker Tech
looks for business opportunities for diversification to its
core business and invests in research and development.
With the Group’s continuous pursuits in research and
development, the Group is able to stay current with the
technological developments and product innovation
is offered to its existing range of products to attract a
bigger pool of clientele.
Steel is a primary raw material used in Sea Deep’s
projects. Therefore, theGroup is vulnerable to thecyclical
nature of demand for steel and the volatility of steel
prices.Asa result, projectsmay facea longer completion
date causing the Group’s financial performance to
be negatively affected. For timely delivery and as a
precautionary measure, Sea Deep maintains amiable
working relationships with its long-term suppliers and
practices inventory control. In addition, Sea Deep
forecasts the price changes of steel for its contracts with
customers. This helps theCompany toeffectivelymanage
price fluctuations for the cost of rawmaterials.
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Financialrisk
Baker Tech’s activities are exposed to the unpredictability
of the financial markets such as changes in foreign
currency exchange rates and interest rates. Generally,
the Group sells in US$ and Euro and procures in US$,
S$ and Euro. Fluctuations in these exchange rates can
amount to foreign exchange losses and cause damage
to the financial position of the Group. While the Group
does not actively engage in formal hedging, it takes
advantage of natural hedging where possible and
attempts toprocure resources in the same currency as the
sales currency. Excess foreign currencies are converted
to S$where possible. To capitalise on favorable foreign
exchange movement for foreign currency conversion,
the Group monitors the movement of foreign exchange
markets regularly.
With most of the Group’s operations being project-
based and carried out over a period of time, payments
are made progressively upon the completion of different
stages of each project. This move exposes the Group to
credit risks and may result in default payments made by
customers.
To minimise the impact of these credit risks, the Group
subjects customers to credit verifications and trade on
credit termswithhighcredit qualitycounterparties. Before
the commencement of each project, the Group ensures
that all accepted orders are contracted from reputable
companies with a healthy credit history. An upfront
deposit is also made before the start of each project.
Moreover, outstanding debts and debtors are reviewed
on amonthly-basis to ensure the timely delivery of orders
andmonitor the progressive payments beingmade.
Operatingrisk
Baker Tech recognises the need to stand resilient in its
daily operations in face of any unforeseen disruptions
to fulfill its obligations to its customers. In this regard,
the Group emphasises importance on creating a safe
andhealthywork environment for customers, employees,
suppliers and the community.
Sea Deep’s core business, being the manufacturing
of oversized and heavy loads of offshore engineering
equipment, poses a significant number of operating
risks. To mitigate these risks successfully, the Group has
several initiatives to minimise workplace injuries and
mishaps and to ensure compliance with government
safety regulations.
One such initiative is that of a safetymanagement system
whichmeets theWorkplace Safety andHealth (“WSH”)
Guidelines enforced by the Ministry of Manpower. A
Safety Committee overseas all WSH procedures in the
workplace and regular meetings are held to review and
provide an update on safety issues including that of
incidents, near-misses and necessary immediate actions.
Risk assessment is also carried out before any the start
of production activities and daily toolbox meetings are
conducted by supervisors to reinforce the importance of
WSH to all workers. Workers have to attend external
training seminars and re-training programs to enhance
work safety and competency in equipment handling to
minimise any injury or accidents. Fire evacuation drills
are held periodically to ensure that the Group is well
prepared for emergency situations.
In the event of any unforeseen global disease outbreak,
the Group has a contingency plan which complies with
the response measures as advised by the Ministry of
Health. This ensures that theGroup can continue its day-
to-day operations withminimal disruptions.
With these internal and external controls in place, Baker
Tech continues to manage the above mentioned risks
as a routine part of its risk management process. With
proper identificationandmanagement of risk, theGroup
continues to strengthen and improve to better maximise
all potential business opportunities.
