Risks, Trends and Uncertainties Destini is inherently exposed to a range of operational, market and financial risks. The Board and Management remain committed to monitoring and managing these exposures within the Group's risk management framework. The principal risks encountered during the year, together with the measures undertaken to address them, are outlined below. Cost Inflation and Margin Pressure. The Group's operating margins are exposed to fluctuations in input costs, encompassing labour, equipment and spare parts, logistics and compliance-related expenses across its Malaysian and overseas operations. Disruptions to shipping routes and wider geopolitical developments can, in particular, escalate logistics costs, as evidenced by the cost pressures arising from the disruption to the Strait of Hormuz. Destini manages this risk through ongoing cost rationalisation, improvements in central administrative efficiency and disciplined vendor procurement. These measures are complemented by efforts to optimise subcontracting expenses and to align fixed staff costs more closely with active billing cycles. Contract Execution and Project Timing. A significant portion of Destini's revenue is derived from long-term government and quasi-government contracts, several of which are structured with a fixed contract ceiling or milestone-based delivery schedule rather than openended billing. Where cumulative billings approach an approved ceiling ahead of renewal, or where physical assets such as train sets or lifeboats are delivered on an extended production timeline, revenue recognition can be concentrated unevenly across periods, independent of underlying demand. Destini mitigates this risk by actively pursuing contract extensions with its government customers, as evidenced by the extension during the year of its panel contract with the Ministry of Defence for the supply of non-proprietary aircraft spare parts for the Royal Malaysian Air Force. It is further supported by a multisegment order book that reduces the Group’s dependence on any single contract cycle. Customer Concentration. A significant portion of Destini's revenue is derived from a small number of government and government-linked customers, with the Mobility segment in particular dependent on contracts awarded by a single government body for the maintenance and delivery of rail assets. This concentration means the Group's nearterm results are closely linked to the continuity of these relationships, including the pace of future contract renewals and project awards. Destini is addressing this concentration through deliberate portfolio diversification. This encompasses an expanded footprint in the privatesector energy market and the extension of its rail MRO services to private and commercial operators beyond its core public-sector contracts. Oil & Gas Cycle. The Energy segment's Tubular Running Services business is intrinsically linked to the capital expenditure cycles of upstream field operators, which fluctuate with oil prices, rig utilisation and drilling activity. A downturn in this cycle can dampen demand for the Group's services and weigh on segment revenue and profitability. Destini mitigates this exposure by securing long-term contracts that underpin revenue visibility through the cycle and by maintaining a lean operating structure to preserve margins. In parallel, it is diversifying into renewable energy, including a long-term solar PV concession that extends the segment's earnings visibility beyond traditional energy markets. Working Capital and Liquidity. Destini's project-based contracts with government and government-linked customers can result in working capital being tied up in contract assets. Protracted procurement, verification and disbursement processes can further delay collections, precipitating periods of negative operating cash flow. Destini mitigates this risk through rigorous balance sheet governance, encompassing stringent credit control, structured follow-up on public-sector billings and disciplined working capital management. Defence Spending and Procurement Timing. As a key supplier to the Ministry of Defence, Destini's Aviation & Defence segment is reliant upon government budget allocations and contract renewals for its defence maintenance, repair and overhaul (MRO) services. Protracted tendering and administrative approval processes may consequently affect the timing and value of contract awards, renewals and extensions. Destini mitigates this risk through its technical capabilities, long-standing accreditations and established in-base presence at key military installations. It is further aligned with the National Defence Industry Policy, which seeks to curtail reliance on external parties and strengthen local participation in defence procurement and MRO. DESTINI BERHAD 40 ANNUAL REPORT 2026
RkJQdWJsaXNoZXIy NDgzMzc=