The company has a systematic method of risk identification, impact assessment, and mitigation. A committee of senior executives supervises risk management. Also the audit committee of Board reviews various risks associated with the business and advices management from time to time about the appropriateness of the company’s risk management policies and measures.

Company has identified following major risks related to its business:

1. External risks

Business cycles

The business of the company is affected by upturn and downturn in economic conditions. The cycles affect sales volumes, competitive situation, prices of finished goods and raw material, operating costs, and also raw material availability. Present conditions in European economies have forced company’s key customers to operate at 60-70% capacity utilization affecting demand of carbon black. 

Regional demand supply mismatches

Rapid expansion of Chinese capacities in last few years, have created demand supply mismatch in the region leading to fierce competition and driving the prices and margins southwards. 

Company has taken various initiatives to keep ahead in competition and
mitigate to a large extent the impact of downturn in business cycles and
also regional demand supply mismatches. The initiatives include:

-   Maintaining differentiation with competitors through superb quality,
    and on-time deliveries

-   Strengthening customer relationship through an active engagement and
    personalized solutions

-   Annual contract negotiations with key customers

-   Identifying and developing new markets

-   Introduction of new product lines

-   Strengthening sales and marketing team for rubber goods and
    specialty blacks

-   Continuous investment in technology and process to improve costs and
    operating efficiencies

-   Offering packaged solutions to customers through combined sales and
    marketing efforts and high level of synergy with other Birla Carbon
    units in the regions.

Fluctuations in Raw material prices

Prices of raw material, i.e. Carbon black feedstock oil, have shown high volatility in tandem with crude and fuel oil prices. This creates risks in developing suitable pricing methods, business forecasting, inventory management, and maintaining constant operating margins period to period. 

The company is employing suitable pricing models, within the flexibility allowed by market conditions, to hedge against the raw material prices. Also a very lean manufacturing model protects against risks from changes in inventory valuations. In case of abrupt changes in demand, Company suitably hedges the inventory through commodity hedging instruments. 

Changes in Government policies

World economic situation has brought high level of uncertainty in Government policies, and timing of policy actions is not always predictable. Government decisions like preferential treatment, anti-dumping duties, tax rates, wage rates, inflation measures, etc. directly impact Company’s business. Company proactively engages with the Government to represent the management view points, influence the policies in right direction, and be prepared in advance for policy actions. 

High degree of volatility in foreign exchange rates

Volatility in key currencies which affect company’s business results like THB, USD, Yen have increased with economic uncertainty. To some extent company’s operations create a natural hedge in short term. Also an appropriate use of available hedging instruments like currency swaps, forward contracts, etc. also protect against impact of currency volatility on profits. Several cost improvements undertaken by the Company help against erosion of competitiveness through directional changes in exchange rates. 

Volatility in interest rates

Company’s borrowing arrangements are linked to LIBOR and volatility in
interest rates affects interest and financing costs. Company is using
interest rate swaps to protect from interest rate fluctuations.

Natural Disasters like floods, earthquake, tsunami, hurricane, etc. in
any of the operating regions, supplier locations, and markets served,
affect company’s business. Though company has insurance programs to
cover financial impact of natural disasters, the impact of any large
scale natural disaster cannot be totally avoided.

2. Internal risks

High concentration of sales in tire customers 

Majority of the Company’s sales come from Tire customers, so Company’s sales are sensitive to developments in tire, rubber, and automobile markets. Company has chalked out a focused program to increase the sales to non-tire customers, e.g. rubber goods, inks, coatings. The program includes strengthening sales and marketing team, introducing new product lines, synergies with other Birla Carbon units in the region, etc. 

Dependence on Raw Material Suppliers

Most of the blenders supplying carbon black feedstock globally are
located in US Gulf coast region. The company procures 65-75% raw
material from US Gulf Coast, and has a high level of dependency on a few
suppliers. In order to reduce dependence, the Company has made efforts
in developing local suppliers within the region, and also experimented
with different types of raw materials. The results have been very
successful, and the dependence has come down from almost 100% a few
years ago to 65-75%, and further efforts are continuing.

Dependence on Key business partners for port infrastructure, transportation, steam and electricity sales

Company depends heavily on a few key business partners for port
infrastructure to unload bulk raw material imports, transportation of
oil and carbon black, and sale of steam. Company has entered into long
term agreements with key business partners to ensure uninterrupted
operations and most beneficial prices.

Equipment failure

Failure of critical production and utility equipment can cause long
stoppage of plant. Company has a well experienced plant maintenance
team, employs best practices of plant operations and maintenance, has an
exhaustive preventive and predictive maintenance system to ensure good
health of all its manufacturing equipments, uses standard operating
procedures in all areas, and also maintains adequate inventory of
critical spares.

Availability of technically trained manpower

As there are very few carbon black manufacturers in Thailand,
availability of skilled manpower in carbon black manufacturing process
and technology is very limited.

Company has many internal and external training programs for its
employees. A development plan is prepared and monitored for every
employee. Also there are frequent knowledge sharing and information
exchange programs with other Birla carbon units across the world for
prompt and effective horizontal deployment of any technology
advancement. Time-to-time Company draws on technical resources of other
Birla Carbon units and technology centers too.

Risk from storage and handling

Feed stock oil or carbon black, in event of any damage to the container
during transportation or storage, could release and pollute a very
limited area. To prevent this, the company follows all international
standards stipulated for their safe transportation and storage. Though
there has never been any accident relating to these products,
theoretically the risk exists. Company has appropriate insurance covers
to safeguard financial losses from such release.

Environment, health and safety risks

The Company assigns highest priority to health, safety and environment.
This is directly looked after by senior management of the Company. In
fact the Company is the first Asian Carbon Black manufacturer to receive
ISO 14001 certificate for ensuring the highest standards of environment
cleanliness.

The production process of Carbon black does not generate any solid
wastes. The liquid waste which is process water is fully recycled in the
process and no discharge. For this initiative, the Company received
River Conservation & Restoration Outstanding Award from Ministry of
Industry in 2009. Flue gas samples are collected and tested regularly
which are well within the standard limits set by the government. The
company also has the cogeneration system of using the waste heat gases
in generation of steam and electricity thereby reducing the carbon
foot-print.

The company also have plan of further investment in phase manner in
equipments to have improved environmental control systems. Also for any
of expansion projects, company carries out environment impact assessment
(EIA) study from an independent consultant and obtains the necessary
approval from Ministry of Industry (MOI).

Besides a very high level of safety consciousness amongst all employees,
inculcated through rigorous training and investment in all necessary
safety equipment, the company conducts mock drills, emergency plan
simulation etc. to ensure high alertness on health and safety aspects.
The company has the robust system of ‘near-miss’ identification and
rectification as part of its preventive system to reduce the
possibilities of any health or safety incident. The company also has
emergency plans in place.

The company is certified for ISO/TS 16949, OHSAS 18001 & ISO 14001 from
BV Certification (Thailand) for its quality system as well as
Occupational Health, Safety & Environment and ISO/IEC 17025; Lab
Accreditation from Thai Industrial Standards Institute and these
certifications demonstrates company's commitment to Quality, Safety &
Environment.