Eng - IOI Group

Management’s Discussion and Analysis cont’dGROUP FINANCIAL REVIEWRISK MANAGEMENTThe Group has in place a formal risk management framework. Overall through strategic measures, consistent risk management andcontinuous refinement, we are able to recognise and exclude fundamental dangers for IOI in the ordinary course of business.Operating Risk Management• Our participation in our core businesses, namely palm oil and properties, entails risks that arise in the ordinary course ofbusiness. Palm oil prices in particular, can be very volatile and can result in wide fluctuation in revenue and cash flow. Other risksinclude oleochemical and specialty fats products margin risk, changes in the property market and other operational risks. Ourrisk management philosophy is to exploit as fully as possible the many opportunities available in the markets we operate in, whiletaking on only those risks that are necessarily associated with creating added economic value and ensuring always a worthwhilerisk-reward ratio. Risks that could not otherwise be managed to a satisfactory level on a proactive basis are strategicallymitigated.• In the case of palm oil, for instance, normal price fluctuations are manageable risks whilst unduly sharp fluctuations and cyclicaltrends are strategically mitigated by the Group’s positioning in different segments of the palm oil value chain, namely plantation,refinery, oleochemicals and specialty oils and fats. The Group’s exposure to different segments of the palm oil chain also providesbetter visibility and enables better risk management execution that enhances value beyond mere balancing out the effects of pricefluctuation.• For the property segment the judicious selection of locations when acquiring land bank and the choice of product mix whenmaking property sales launches during different phases of the property market cycles are the most crucial factors in managingmarket and operation risks.• Control risks and other day-to-day operational risks are covered by the Group’s Enterprise Risk Management System. Risks of notmeeting strategic objectives or performance targets are identified, evaluated and remedial action taken. The Risk ManagementCommittee of the respective business units formally reviews, update status and reports to the Audit Committee on a quarterlybasis.IOI Corporation BerhadANNUAL REPORT 2007 24