Risk Management Policy and Plan
The Board of Directors and management team have consistently implemented integrated risk management measures for the organization’s sustainable growth. This approach involves joint planning, developing a common strategy, sharing roles and responsibilities, and working in harmony. The principles of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management are followed, with consideration given to the potential risk of corruption. The main objective is to effectively manage and control both internal and external risks to maintain an acceptable level. The management team regularly follows up and closely monitors risk management, reporting the results to the Executive Committee and conveying them to the Risk Management Committee and the Board of Directors on an annual basis. This enables the comprehensive consideration of risks and their potential consequences throughout the organization. Additionally, reports are provided when significant events occur to assess and monitor the outcomes of risk management. Collaboratively with the management team, efforts are made to update and improve risk mitigation plans to adapt to changes, issues, and potential obstacles in a timely manner.
Risk Factors to the Company's Business Operation
1. The Risk from Major Customers
In previous years, the company had a major customers whose sales accounted for more than 10% of total sales. In 2022, the company had one major customer from America, whose sales contributed more than 10% of total revenue. The increased sales were driven by policies supporting the usage of LPG for cooking and domestic travel, as well as the consequences of the trade war between China and the United States. This resulted in Thailand gaining a competitive advantage over China due to lower import tariffs. Additionally, the cost of raw materials and labor in the customer’s country has significantly increased, leading them to turn to imports. However, the company does not rely on any customers with sales exceeding 30% of total revenue.
2. Substitute Products Risk
Currently, there are substitute products for steel LPG cylinders, such as aluminum cylinders and composite cylinders. These alternative options are lighter than traditional steel cylinders.
3. The Risk from New Competitors in the International Market and Trade Barriers
The company primarily serves customers in developing countries where the consumption rate of cylinders is currently low, as these countries have recently begun investing in storage plants and filling plants. Local manufacturers in these countries have just entered the gas cylinder industry and are unable to produce cylinders that meet standard requirements, resulting in insufficient supply to meet the countries’ gas demands. As a result, these governments encourage the importation of cylinders. However, if the local manufacturers can develop production technology and increase capacity to meet domestic demand, it could potentially impact the company’s sales in the future. Additionally, external factors such as international trade and economic policies, including investigations by the United States of America into the dumping and subsidies policies of cylinders imported from Thailand and China, may also affect the company’s sales in the future.
4. The Risk of Loss and Lack of Successors in Executive Positions
The risk of losing and lacking senior positions can have a significant impact on effective operations, potentially leading to underachievement of company performance targets and disruptions to development and business growth.
5. The Risk of Cyber Threats
The risk of cyber threats is of utmost importance and significantly impacts the company’s operations, particularly its key systems such as network infrastructure, financial systems, accounting systems, internal management systems, and human resources systems. These systems contain personal information held by the company. Any issues with the company’s information technology system or unauthorized access to personal information can inevitably disrupt the company’s operations and damage its reputation.
6. The Risk from Natural Disasters
The company faces the risk of natural disasters, which can result in production interruptions and damage to company facilities. Additionally, natural disasters can disrupt logistic routes and lead to delays in product delivery. Recognizing the significance of this risk, the company has conducted a thorough risk assessment and included it in its risk register. Furthermore, the company has implemented a comprehensive plan to mitigate potential risks in both the short-term and long-term.
7. The Risk of Corruption
The company acknowledges that corruption poses a significant challenge to both the country’s development and business operations. Consequently, the company consistently conducts its business with utmost honesty, transparency, and adherence to sound corporate governance principles. Rejecting any form of corruption is an integral part of the company’s mission. Anti-corruption measures are established as company policies for employees and executives to follow.
Management and Operational Risks
1. Raw Material Shortages and Price Fluctuation Risk
Hot-rolled steel is the primary raw material used in manufacturing LPG cylinders, accounting for approximately 50-60% of the total cost. It cannot be replaced by other raw materials. Fortunately, there is no shortage of suppliers worldwide, ensuring a steady supply. Fluctuations in steel prices directly impact the company’s sales price, cost, and profit. Typically, the sales price is determined based on the global steel price index, which varies with the economy and oil prices. Therefore, there is a risk that the company may not achieve its planned sales and profit targets. Additionally, the lead time of 2 months for producing and delivering products to the destination country sometimes results in a discrepancy between the cost of raw materials and the determined sales price. To mitigate the impact of raw material price fluctuations inherent in the industry, the company must have effective manufacturing plans, sales strategies, and inventory management.
2. The Risk of Labor Force Shortages
SMPC’s manufacturing process, known as Semi-Automatic, is one of the company’s strengths, offering production flexibility for various types and sizes of cylinders. However, the Semi-Automatic process requires workers at multiple stages of production, including the delivery process, where workers are involved in conveying, packing, and loading cylinders into containers. Therefore, the availability, efficiency, and expertise of the workforce significantly impact the company’s operations.
1. Exchange Rate Fluctuation Risk
The company primarily operates as an exporter, with more than 90% of total sales revenue coming from international trade transactions, predominantly in USD, Euro, and GBP. Therefore, fluctuations in exchange rates can significantly impact the company’s revenue and profit.
2. Trade Credit Risk
The company faces the risk of late payments or bad debts that could result in financial losses.
Risks of Laws and Regulations
1. The Risk of Non-Compliance with Relevant Laws
The company may face the risk of non-compliance with relevant rules and regulations if it fails to keep up with the latest updates. This could result in being ordered to pay fines or facing temporary suspension of business operations.
Social and Environmental Risks
1. Risk of Waste Disposal from the Manufacturing Process and Potential Environmental Lawsuits
During the manufacturing process, the company generates waste that could have an adverse impact on the environment if not properly monitored. However, the company is committed to conducting business with a sustainable and eco-friendly approach to mitigate the risk of potential environmental lawsuits in the future
Risks Affecting Rights or Investment of Security Holders
1. Risk of Major Shareholders Influencing Management Policy
Some major shareholders of SMPC hold positions as directors, members of the management committee, and/or authorized signatories for the company. As a result, there is a risk that these major shareholders may exert influence over operational guidelines and management policies in a specific direction. This influence could include the use of their authority to determine and implement significant changes within the company. There may also be transactions that present conflicts of interest or unfair connected transactions that are not in the best interests of the company.