2. Risk Factors

Tata Steel (Thailand) has adopted a Risk Governance structure which
promotes a forward looking approach to risk management. This approach
enables the Company to counter and mitigate various risks and
simultaneously allows it to pursue underlying opportunities for the
business benefit. Being an enterprise in the steel arena, quite
expectedly, the company encounters several risks and concerns in its
business operations. Accordingly, a risk portfolio matrix has been
developed consisting of all known business risks, followed up with a
detailed analysis of business environment, market condition and
organizational capabilities. All attributes along with key learning in
various functions is collated, undergoes a series of deliberation during
risk committee meetings, validated through appropriate adequacy checks,
and a mitigation strategy is evolved. The prioritization process along
with functional implementation of specific assignments, ensures
effectiveness of the overall objective. We give below an assessment of
management approach in various types of risks.

1. Market Risk

Like any other country, the Thai steel industry is vulnerable to the
cyclical swings in the market demand and price volatility that stems
from input raw materials as well as finished goods. Since, long products
are predominantly consumed by the construction segment, GDP growth has a
direct impact on the demand volatility. Further, Thailand promotes free
trade regime and as such supply situation is severely influenced by
imports leading to increased volatility in the finished goods prices.

The company has taken concrete steps to mitigate the adverse effect of
the market risk by focusing on having a branded play in one of the main
product lines. Further, the company has steadily developed new products
to increase its presence in the automotive segment. This segment enables
company to hedge against the over dependence in construction as well as
allows mix enrichment with a comparatively higher revenue. A focused
approach to increasing the specialty products in the total mix is
directed at mitigating the market risk. Development of specialty
products is supported by the technical expertise that the company has
from the resources at the local and group level.

2. Risk of Raw Material Supply

Being raw material dependent, like any other steel company, TSTH does
have to address the risk arising from volatility in quantity and prices
of input materials. Post MBF moth ball, the risk exposure of TSTH is
limited to scrap. Since, Thailand generates and provides 60% of the
local scrap for domestic use, a mitigation approach of the company has
been to strengthen its network of domestic vendors, its approach in the
supply space to bring reliability in domestic collections. Imports also
provide a hedge to the risk since a timely contracting can help address
both quantity and quality risk. TSTH has made significant strides in
last one year in this area and has taken assistance of the resources at
the Tata Steel Group level.

3. Risks Associated with MBF

Mini blast furnace project at NTS was commissioned to attain an enriched
mix. However, the continued high prices of coke and iron ore compelled
the company to mothball the furnace in August 2011. By ensuring a proper
maintenance, the company has addressed the potential risk of problems in
restart. Workforce has been retained but redeployed at NTS and company
keeps a tight watch on raw material price movement to check the
viability of restart. All supplier relationships have been kept warm and
valid to ensure continuity.

4. Health, Safety and Environment Risks

Like any other steel making operation in any other country, the steel
making operation has an inherent safety and environment risk. While,
steel operations perse do not involve hazardous materials, the
operations are at high temperature and heavy loads are moved. Since, the
steel plant has manning of contractor and own employees, it is essential
to have a comprehensive safety management program. Accordingly, the
company has implemented Safety Excellence Management program across all
its three plants. In particular, the Fatality Risk Control program has
been carried out last year to mitigate the risk potential of unsafe
conditions and unsafe acts. The “zero tolerance” approach has enabled
rigorous implementation of contractor management safety initiatives to
strengthen safe working practices in all outsourced activities. The
safety excellence has also been extended to corporate offices wherein
regular safety drills and training is carried out to bring in safety
awareness and engagement.

The Company and its subsidiaries accord high priority to utilize
resources effectively and efficiently with appropriate environmental
management regulation to minimize adverse impact to the community.
Industrial Estate Authority of Thailand (IEAT) and Department of Primary
Industries and Mines, Ministry of Industry has recognized efforts of NTS
and SCSC on environment front. The main raw material used across all
three locations is ferrous scrap and is fully recyclable. Company has
adopted TPM framework and under loss structure reporting, employees
identify the areas of wastage and implement project to minimize the
energy consumption. Company conducts yearly energy audit by experts from
Tata Steel Group. This enables appropriate warning system for any
related risk.

5. Human Resource Risks

Operating out of industrial zone and in the low unemploymentregion of
Bangkok, the company faces an obvious risk of attrition particularly in
operating grade and supervisory grade employees. To an extent, the risk
is self mitigating in nature due to high churn experienced by almost all
industries. However, the company provides career growth opportunities as
well as extensive personnel development programs on functional and
managerial needs to improve the competency level of employees thereby
inducing loyalty. In addition, Knowledge management system and IT
related systems are used to retain the tacit and expressed knowledge
thereby mitigating the risk associated with loss of critical resources.

6. Risk of Foreign Exchange Volatility

The volatility in foreign exchange leads to potential business
profitability risk in view of the increased ‘buy base’ from
international markets. Albeit small when compared with the total
business revenues of the company, the Forex volatility is being
addressed through a Hedging mechanism in line with a structured hedging
strategy, monitored by the Regional Treasury Committee, with a formal
reporting mechanism to the

Board.

7. Risks Associated with Natural Calamity

Due to its location in 4 different geographies, the company’s inherent
risk to natural calamity is relatively moderate. During last year
floods, the steel plant in Saraburi stayed protected though had to be
closed due to flooding of employee areas. The other two plants are in
East of Thailand and as such untouched. However, the company is aware of
the risk associated with operating in industrial area and has
accordingly taken extensive insurance coverage related to natural
calamity risks. The company does emergency handling procedures at all
its facilities, and a structured periodical ‘mock drills’ are done to
ensure effectiveness of such procedures. Disruption to business
operation is effectively addressed by flexible supply chain management
and switching operation amongst the three production units.