Risk Management
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.
Risks Affecting Rights or Investment of Security Holders
1. Risk from fluctuations in freight rates
In 2024, sea freight rates increased dramatically and fluctuated greatly. It was similar to the situation that has happened in 2021,
which in the past was caused by the COVID-19 outbreak, causing a labor shortage and ship delays, containers not circulating adequately in the system. In 2022 The situation regarding ship freight and ship space improved and ship freight rates returned to normal. However, now the situation of fluctuation in freight rates has occurred again. The reason was due to the trade policy of the United States which has measures to increase tariffs on imported goods from China. As a result, Chinese companies were rushing to export products in advance to reduce the impact of high tariffs. This resulted in the problem of not having enough containers. In addition, the conflict situation in the Red Sea, shipping lines adjusted new transportation routes, which has resulted in longer transit times and higher freight costs. As a result, freight rates have increased and fluctuated greatly in all regions around the world, especially routes in Europe, the United States, and Africa, which are the company’s main customer regions.
Risk Impact
Fluctuating increases in transportation costs result in lower profit margins. The company faced the risk of loss from increased
transportation costs. In addition, a shortage of containers may cause product delivery to be delayed. Exports do not go as planned, affecting the sales plan and inventory management of the company
To mitigate the impact from fluctuations in freight rates that are continually increasing. The company has adjusted its sales price strategy to be selling without including shipping costs (FOB). If customers require consolidated shipping services (CIF), the company will negotiate with the shipping lines to clearly determine shipping costs to maintain the shipping rate throughout the delivery period to reduce the risk of fluctuations in shipping costs or offer options to customers by quoting the shipping cost again before the delivery date. In addition, the company has planned production line to be in line with the shipping schedule of the ship line. Additional storage space to ensure continuous production, and products ready to ship immediately when the container is available to be able to deliver products according to customer needs. The company is increasing the time period for space reservation on ships in advance and recruiting additional freight forwarders to increase negotiation opportunities.
Risk Factors to the Company's Business Operation
1. The Risk from Major Customers
In 2024, the company had 1 major customer, which was a customer from America with orders of more than 10 percent and 30 percent of total revenue. This was due to the policy supporting the LPG usage for cooking and domestic traveling. The trade war between China and the United States resulted in Thailand competitive advantage over China in terms of lower import tariffs. Besides, the cost of raw materials and labor in the customer’s country has increased considerably, so they turned to import instead.
Risk Impact
Reliance on large customer may affect the company’s operating results if large customer reduces or delays orders. It may cause the company’s sales to decrease significantly and may not meet the goals set. This will affect the overall profit and financial status of the company. Additionally, factory may encounter a shortage of production orders. This can lead to higher unit costs from fixed costs
SMPC manages the risks by increasing sales distribution in various regions and penetrating to new market, in order to increase the variety of customers. Normally, customers from different regions have different timing of demand. Therefore, the company can manage to have the consistent production plan throughout the year. Besides, the company has good relationships with major customers as business partners by jointly developing products and setting marketing plans to increase business opportunities, which is part of the customer care strategy to build a long-term customer base. For example, in the past, the company and customers have collaborated on continuous product development. In addition, with consistently good product quality standards, on time delivery and reasonable selling prices, the company is able to respond to customer needs very well.
2. Substitute Products Risk
At present, the product that can substitute for the steel LPG cylinders is cylinder manufactured from composite material or composite cylinder which are lighter than normal steel cylinders.
Risk Impact
At present, technology and innovation in packaging are continuously evolving. As a result, consumers are beginning to pay more attention to cylinders made from alternative materials. If in the future Composite cylinders are accepted by a wider range of consumers, this may result in the demand for steel cylinders continuing to decrease. The company’s customers may reduce the steel cylinder orders. As a result, the market share of steel cylinders may shrink, thus the company is to encounter increased competition.
3. The Risk from New Competitors in the International Market, and the Trade Barriers
The company’s customers are mainly from the developing countries, which is currently has low consumption rate of cylinders because the countries just started to invest in storage plants and filling plants. The local manufacturers in these countries just entered into the gas cylinder industry. They are not able to produce the cylinders that meet the standard requirements, hence not enough for the gas demand of the countries. Therefore, their governments encourage the imported cylinder. Nevertheless, if the local manufacturers can develop technology in production and increase capacity to serve the demand in their countries, then it may have an impact on the company sales in the future. There are also other external factors on the international trading and economics policy, such as high tariff and trade barrier. They may affect the company’s sales.
Risk Impact
The emergence of new competitors abroad and trade barrier measures may affect the company’s sales. If local manufacturers can develop production technology and increase production capacity to meet domestic demand. It may affect sales, market share and the profit rate. In addition, trade barrier policies may lead to higher import tariffs and may cause sales targets to not be achieved.
SMPC is always monitoring market situation, and studying the possibility to invest in the countries with high potentiality, and take all kinds of risks into account. On top of that, the company plans to do marketing jointly with the high potential local manufacturer, selling product under SMPC brand. As for the impact of international trade and economic policies, such as trade policies between the United States and China, initially, it had a positive effect on the company’s sales, with customers in the United States ordering more from the company. However, the company has been closely monitoring the situation in order to prepare timely countermeasure.
4. The Risk of Loss and Lack of Successors in Executive Positions
The risk of the lost and lack of senior positions, may have an impact on the effective operation. The company performance may not be achieved as per the target. The development and business growth could be disrupted.
Risk Impact
Lack of successors for the key executive positions may affect the stability and efficiency of the company’s business operations. In particular, uncertainty in the leadership structure may reduce the confidence of investors, customers and business partners, resulting in a decrease in the company’s competitiveness. In addition, the lack of personnel with expertise in specific business management may result in the inability of the corporate strategy to be continuously implemented, which may affect the company’s performance and growth.
SMPC realizes the impact from the issue, therefore the structure of delegation authority is well prepared. The company is arranging decentralization to top and middle management. Therefore, the executives can work for each other in accordance with the internal control system, such as related duties and responsibilities, and working process of each division within the order of authority. In addition, the company has implemented the Career Planning & Succession Planning project as a long-term guideline for selecting successors for various positions so that the company can operate continuously and efficiently. It also prepares to develop employees to have the appropriate qualifications for higher positions, which are an incentive for advancement and growth with the organization. In order to enhance the organization’s efficiency, the company has introduced technology to assist in management instead of relying on personnel. The company also promotes the process of Knowledge Transfer through employee training and creates documents to record Procedures to ensure that important knowledge of the organization is systematically and correctly transferred. In addition, the company has set guidelines for developing the quality of executives by sending executives to attend training courses to enhance their knowledge and skills and reduce their dependence on any one executive to prevent and reduce the risks that may occur. (For more details, please see Section 8.1.1 “Board Selection / Director Development / Director Performance Evaluation)
5. The Risk of Cyber Threats
The risk of cyber threats is very important and affects the company’s operations, especially the key systems such as network, financial, accounting, internal management and human resources. The said systems contain personal information that the company possesses. If there is any problem with the company’s information technology system, or access to personal information, it inevitably affects the operations and reputation of the company.
Risk Impact
Cyber attacks can impact a company in terms of operations, finances, and reputation. If important data, such as customer data, financial data, or personal data, is accessed without authorization, it may lead to data leakage, as well as loss of business advantages. If the company’s strategic data is leaked, and personal data is violated, it may cause the company to face legal penalties and fines. In addition, if critical systems such as SAP or the main network system are unavailable, various departments will not be able to operate as scheduled, which may delay important documents and damage work processes. In addition, the inability to back up data during a crisis or if the company’s system is hacked, it may result in data loss, as well as opening the way for malware or viruses to spread through the corporate network, leading to the leakage of important data and loss of business opportunities.
The company has planned, and increased the investment to develop working systems to support new technology and protection against cyber threats, i.e., improving the computer network, and server to enable the system to work successively. The company also set up the strict security control measures, which are the computer security system (Firewall), the access authority to the particular information, and network of backup center to support any emergencies, to ensure the business continuity.
In addition, the company has a computer system security policy that covers measures to prevent cyber threats. The system management team has hired an external agency with expertise to inspect, test, and report the results of the system security assessment regularly at least once a year to ensure that the company’s system has sufficient protection and can cope with cyber threats. For 2024, the company has already complied with the specified policy
6. The Risk from Natural Disasters
The company may be at risk from natural disasters such as floods, which are natural accidents that cannot be avoided.
Risk Impact
Natural disasters can cause production disruptions, damage to machinery, inventory and the company’s infrastructure. In addition, if transportation routes are cut off or damaged, employees may not be able to travel to work and product deliveries may be delayed. Moreover, prolonged production disruptions can affect business continuity, resulting in reduced sales and profits. The resulting damage may cause the company to postpone or delay investment and business expansion plans.
Although the company has never been affected or damaged by natural disasters such as floods, but always has prepared a preventive plan. The preventive plans include news updating, protective equipment maintenance and inspection to be in used condition, as well as providing adequate equipment for the situation that is expected to occur. Including the assessment of the natural disasters’ side affected from the government plans intimately. Also purchasing suitable insurance plans to alleviate the burden of damage that may occur.
7. The Risk of Corruption
The company realizes that corruption is a major obstacle to the development of the country and business operations. Therefore, the company has always been conducting the business with honesty, transparency, and compliance with good corporate governance principles. It is set to be part of the company’s mission not to accept any form of corruption. The anti-corruption is also set as company policy for the employees, executives, and stakeholders as directions to follow.
Risk Impact
Fraud or corruption may cause the company to lose the confidence of customers, investors and stakeholders, which will affect the company’s image and reputation in the long run. It may also cause the company to be prosecuted or fined under relevant regulations, have a financial impact and lose business opportunities. In addition, corruption may cause the company to lose the opportunity to participate in new projects or cooperate with business partners.
The company has been a member of the Private Sector Collective Action Against Corruption (CAC) since April 22, 2016, by setting the anti-corruption and its procedures in accordance with the company policies. The Audit Committee and the Board of Directors always monitor the anti-corruption performance, providing channels for whistleblowing with preventive measures for the complainants. The company prepared a manual for the implementation of the Anti-Corruption Policy for directors, executives, employees, as well as the related partners to be informed through the company’s intranet channel. Assessment of the risks of fraud and preventive control measures was rigorously and continuously conducted. The company has been continuously renewing its certification. In 2024, the company was approved to renew its certification as a member of the Private Sector Collective Action Coalition Against Corruption for the 3rd time, which will be effective for another 3 years (ending on 31 March 2028).
Management and Operational Risks
1. Raw Material Shortages
Hot rolled steel is the main raw material in manufacturing LPG cylinders, and accounts for about 50-60% of the total cost. It cannot be substituted. As there are many suppliers worldwide, so there is no problem of shortage.
Risk Impact
If there is a shortage of raw materials, the production process may be disrupted, causing the company to be unable to produce and deliver products to customers on time, which will affect customer confidence. In addition, a shortage of raw materials may cause the company to have to procure steel raw materials from other sources at higher prices, resulting in increased production costs and lower profit margins if the selling price of products cannot be adjusted to be in line with the increased costs.
The company has set a systematic approach for raw material management to ensure efficiency in production management and sales. When steel prices drop, the company will order some sizes of steel that it is regularly used as inventory, considering the appropriate order quantity from the sales plan, plus the forecast of customer demand based on past order data and the current economic situation. In addition, the company closely monitors changes in raw material prices in the market, using long experience in the industry to forecast steel price conditions in the market before making a purchase decision. Before each purchase, the company compares prices from several steel suppliers with similar credentials to ensure that the company obtains the desired quality raw materials at the best price and conditions. The above management also reduces the risk of late delivery to customers, increases competitive efficiency, and reduces the cost of holding and reordering raw materials
2. Risk from Steel Price Fluctuations
The global price of hot rolled steel is highly volatile due to many factors, such as the global economy, exchange rates, oil prices, and transportation costs. In particular, when there are external factors affecting the industry, such as the demand for steel in China that changes according to government policies or inflation problems in various countries, these all affect the global steel price index, which is an important variable in determining the selling price of gas cylinders.
Risk Impact
Steel price fluctuations directly affect the company’s selling price, cost, and profit. Normally, in the industry, the selling price is based on the global steel price index, which fluctuates according to the economy and the increasing or decreasing cost of oil. Therefore, there is a risk that the company will not be able to achieve its sales targets and profits as estimated. In addition, the company’s products are made-to-order products, which have a production period until the customer receives the products (Lead Time) of approximately 2 months. Therefore, in some periods, the cost of raw materials is different from the specified selling price, which affects the company’s profits.
For long-term contract sales, the contract usually specifies that the company can adjust the selling price to be in line with the current price of steel (Formula Price), so the impact on this matter is not significant. For sales by purchase order, the company manages by ordering steel at the same price as the company offers the price in order to reduce the impact of price fluctuations. In the case of large purchase orders with delivery periods of several months, the company will enter into a steel purchase agreement in advance with the steel manufacturer to reduce the risk of fluctuations in raw material prices. In addition, the management regularly monitors steel price trends in order to adjust sales strategies and raw material purchases in time or to alleviate any impacts that may occur in a timely manner.
3. The Risk of Labor Force Shortages
The manufacturing process of SMPC is the Semi-Automatic which is one of the strengths of the company, i.e. flexibility of the production allowing the company to produce cylinders in various types and sizes. The Semi-Automatic needs workers in many steps of production process. Delivery process also needs workers to convey, pack, and load cylinders into the container. Therefore, the number of workforce and their efficiency and expertise are the factors that have an impact on our business.
Risk Impact
Labor shortages may affect the company’s production efficiency. If there is an insufficient number of workers or workers lack expertise, production processes may be delayed. The company may not be able to expand production capacity as planned, which may affect the company’s sales and revenue. In addition, a shortage of knowledgeable and skilled workers may increase the risk of workplace accidents, affect employee safety, and may increase production errors, resulting in higher production process waste and increased operating costs. In addition, if the company is unable to retain skilled workers, it may have to spend time and resources on training new employees, which may increase personnel costs and affect business continuity.
The company has developed and improved production technology by constantly following up on new technology. The company has begun to develop robots and introduce automatic production lines to replace traditional machines in the production process. It was found that production efficiency improved. Waste from the production process is reduced. It also reduces the use of labor in production. The company has a project to continuously develop and install additional automated production systems for other production steps. The company also focuses on taking care of employees so that they have a good quality of life. The company considers human rights as a major rule. The company have the reasonable package and compensation according to the competency and skills of the employee. The wage levels and benefits are competitive, and attractive. The company set up the Benefit and Welfare Committee to represent the employees to contact with the company for any suggestion and good environment in workplace. The company aims for employees to be happy in workplace and be able to keep the skilled and experienced labors
Financial Risks
1. Exchange Rate Fluctuation Risk
The company is mainly an exporter (sales from the export contributes more than 90% of total sales revenue) with the income in foreign currencies from trading transactions; mostly in USD, Euro and GBP.
Risk Impact
Exchange rate fluctuations may affect the company’s revenue and profits. If the US dollar, Euro or Pound sterling depreciates against the Thai baht, revenue converted into Thai baht will decrease, affecting the company’s profit margin and may result in an increase in product prices, which may result in higher export prices compared to competitors, resulting in a loss of market share. In addition, a stronger US dollar may increase the cost of the company’s imported steel raw materials, affecting its cost structure and profit margin, and the company may need to adjust its product prices, which may affect the company’s competitiveness. Moreover, currency fluctuations may create uncertainty in the company’s cash flow management and budget planning, investment and cost management.
Most of the company’s income is in USD, and the company also imports main raw materials: hot rolled steel, and other raw materials from abroad in USD. In 2024, the company has imported raw materials amounting to 97% of the total demand for raw materials and equipment. Therefore, the company has mitigated the risk with natural hedge by using sales revenue in USD to pay for raw materials in the same currency, in order to reduce impact from the exchange rate. As for the sales revenue in other currencies, Euro and GBP, the company is closely monitoring the exchange rate, and also considering other related factors, so that the company can make financial plan and also use the financial tools such as forward contract to efficiently mitigate the additional risks. In addition, the exchange rate trends and situations are reported at the Executive Committee meeting to continuously monitor the situation.
2. Trade Credit Risk
The company has the risk of late payment, or bad debt that could result in the loss of benefits.
Risk Impact
The risk of trade credit affects the company in the case that customers make late payments, which may directly affect the company’s cash flow. In addition, extending credit for a long period of time may increase liquidity risk because the company may need to allocate additional working capital to cover delays in receiving payments, which will result in higher financial costs. In addition, if some customers experience financial difficulties and are unable to repay their debts, the company may need to set aside provisions for bad debts, which will directly affect profits and financial statements. Besides, strict debt collection may affect business relationships, causing tension between the company and customers. Moreover, if the company does not manage credit risk well, it may affect image and credibility in the eyes of business partners and investors. In addition to the risk arising from granting credit, being too cautious in considering credit limits or setting strict conditions may cause the company to lose business opportunities and make it more difficult to expand customer base.
In general, the company has financial policy on selling by requesting the L/C, in fully or partly advance payment before delivery. The company has procedures in considering the appropriate credit limit with clear authority level. Usually, the credit term ranges from 30-90 days depending on the financial status and the duration the company trades with the customers. In addition, the company also reviews the credit policy and credit limit of all customers together with credit risk assessment regularly, by reviewing financial statement of customers in order to assess the reliability of financial status. The extra assessment will be implemented if there is any special circumstances, such as Covid-19 outbreak. However, most of the company’s customers are world class oil and gas traders with strong financial position. Therefore, in all history, the company has never had bad debt.
Risks of Law and Regulations
1. The Risk of Non-Compliance with Relevant Laws
The company has the risk from not compliance with the related law, which may result in paying a fine or temporarily business shut down.
Risk Impact
If the company fails to comply with relevant laws and regulations correctly and in a timely manner, it may face fines and the risk of being suspended from operations if it fails to comply with the requirements on time. It may also result in delays in project implementation, affect the company’s image, and reduce the confidence of customers, partners, investors, and relevant agencies. If the problem is widespread, the company may encounter legal disputes or more stringent scrutiny, which may affect the company’s future business opportunities and growth
To prevent from the production and business shut down, each department is assigned to consistently consolidate and follow up with the information and related law. The System Administration Unit is the center for collecting legal information from all relevant parties to check the status of the renewal of various licenses, including the process of checking compliance with the current law and the new law to be comprehensive.
Social and Environmental Risks
1. Risk of Waste Disposal from the Manufacturing Process and the Environmental Lawsuit in the future
The company has waste from the production process that may have an impact on the environment. The company is aware of the mission to operate in an environmentally sustainable manner and prioritizes the management of waste from the production process in order to avoid environmental problems that may be a significant risk affecting the company and may lead to environmental lawsuits in the future.
Risk Impact
Improper waste management or violation of environmental laws may affect the company’s reputation and credibility, including additional costs from compensation for damages and taking corrective measures as required by regulatory agencies. The company may face legal risks and lawsuits from the government or surrounding communities, including the suspension of the company’s business operations. In addition, the occurrence of environmental lawsuits may cause the company to lose business opportunities, both from delays in applying for new licenses, being restricted from participating in government projects, or being disqualified from ESG standards and requirements, which are important factors in selecting business partners for customers and investors today. Such risks may affect the stock price and access to sources of capital, as well as cause the company to lose confidence from investors.
SMPC sets the division of Occupational Health, Safety, Environment, and Energy. The division is directly responsible for the efficiency of controlling and managing the environment. As well as the system management division is to consolidate the related law, and follow up the operation status. For the industrial waste disposal, which cannot be disposed during the production process by the company, we hire the certified company, specifically running the waste disposal, to manage it. Besides, the company received the certification approval for ISO 14001:2015, the Environmental Management Standard, on 26 December 2017. Ever since, the certification has been approved for renewal, the latest one is until July 2027.
Risks Affecting Rights or Investment of Security Holders
1. Risk of Major Shareholders Influencing Management Policy
The company has some major shareholders who hold positions as directors and executives and/or are directors with the authority to sign and bind the company. Therefore, the company and minority shareholders may be at risk from major shareholders having influence over the determination of management policies in one direction or another.
Risk Impact
The fact that major shareholders hold positions as directors, executive directors, and/or directors with the authority to sign and bind the company may lead to the risk of imbalance in management. If there is no effective check and balance system, major shareholders may influence the determination of management policies or decision-making on important matters of the company that are not in the best interests of the company and minority shareholders. There may also be conflicts of interest or unfair related transactions. If there is no strict supervision, some transactions may not be transparent and not in accordance with the company’s corporate governance principles. Such risks may affect the company’s credibility and reduce the confidence of shareholders and investors.
The company has appointed an audit committee consisting of independent directors who have no interest in the company to perform duties in auditing the company operation with professional outsource internal auditors monitoring the adequacy of the internal control system. The company has established policies and guidelines for good corporate governance as well as following up to ensure compliance with the established guidelines and follow the law, rules regarding to the connected transactions as per the rules of SET, and/or SEC. There is a scope of authority and the authority to approve transactions for each level within the appropriate credit limit. It is stated in the company’s regulations that any approval or transaction must be jointly signed by 2 directors who have the authority to bind the company. Some directors are professional and independent directors, causing a check and balance of power in management. As the company strictly adheres to the management policy in accordance with the principles of good corporate governance and makes decisions under the best interests of the company, resulting in the year 2024, the company received an “excellent” corporate governance assessment, the highest level, five badges for the fifth year in a row, from the Thai Institute of Directors Association. In addition, the company has been ranked in the top 25% of all listed companies (Top Quartile) for the second consecutive year from the survey and assessment. On December 16, 2024, the company was also announced the results of the SET ESG Ratings 2024 assessment at AA level for the second consecutive year from the Stock Exchange of Thailand (SET)
