Perwaja Steel Sdn Bhd Strategic Management

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are cheap and Perwaja’s sale would decrease accordingly. Perwaja is claimed to still be in a down cycle, where operators would generally invest in their plants and equipment, and only start producing and selling whenever there is an upward cycle (Adnan et al., 2013).

4.3 Management of cost.

Management of cost discuss issues related to cost management with raw materials, cost of goods sold, and funding cost. as mentioned

4.4 Returns and Revenue

Students would discuss about price risk. What is the price of steel now? How will the market for steel be? Is it good to sell now or wait? Etc. How is the supply and demand for steel?

4.5 Interest rate risk

Intrest rate risk can be defined as the market value of equity or future cashflow may change due to fluctution in market intrest rates. Intrest-bearing financial assets and liabilities are the main exposures to intrest rate risk for Perwaja. The policy is any surplus fund available to Perwaja will be placed with licensed financial institutions to generate intrest income. But, in current situation there surplus amount is not available due to liquidty problems. According to annual report 2011, an increase of 100 basis point will lead to decrease of 8,027 RM in profit after taxation and vice versa. In 2012, an increase of 100 basis point will lead to decrease of 11,343 RM in profit after taxation. On the other hand with decrease of 100 basis point, 11,343 RM will be added to the profit after taxation. As it can be seen in these two analysis, there is an inverse relationship between changes in intrest rate and changes in profit after taxation. This shows that Perwaja is liability sensitive.

Here students would be analysing interest rate risk. How will be the interest rate outlook? Is this company exposed to interest rate. Students who provide an anlaysis of the Gap situation and tying up with interest rate risk would be awarded good marks.

4.5 Refinancing risk

refinancing risk is the possibility that a borrower cannot refinance by borrowing to repay existing debt. It commonly happens when there is a change interest rate as the company has tp refinance liabilities ath a diffrent intrest rate in near future. The downgrading process for RM400 debt notes was due to inability of the firm to meet its 50 million ringitt obligation on September 2013. The impact will be noteworthy as when they enter to money market to borrow or refinance, they need to bear a higher intrest rate. This will directly increase their cost of funds and will have an impact on their operation and investment.

Discussion would center around raising funds. The purpose of the fund should be provided. Due to the downgrade, how will it affect new fundings and what risk does it pose.

4.6 Forex Risk

Forex risk concentrates on foreign currency risk analysis. Since Perwaja is operating internationally and involves in off border trading, they might face currency risk. This risk invloves the unexpected changes in currency that may affect a future operation or cashflow. In Perwaja annual report in 2012, three major currency which Perwaja was dealing with is analysied in termm of sensitivity to possible changes in foreign currencies at the end of each period while other variables held constant. For instance, if USD strengthened by 5% in 2012, there would be a decrease of RM6,491,000 on profit after taxation and vice versa. In addition, if Euro weakened by 5% in 2012, there would be an increase of RM85,000 in profit after taxation and vice veresa. These changes show Perwaja is facing forex risk constantly.

Does the company face forex risk? How? How much?. Students showing Net exposure and relating it to how changes in the foreign exchange would impact on the company would receive good marks.

5 Recommendation

Students would at least discuss on strategy for one issue. If they are using fowards, futures, swaps and options as strategies. It must be specific with either buy sell and the rational for it. Any innovative idea would receive good marks.

6 Conclusions

The student would conclude the report.