The company carries various risks relating to its business both industrial and corporate specific risks on account of internal & external factors. The company pays utmost attentions to various risk factors associated with its business operations to achieve its corporate goals and objectives. The audit committee also reviews various risks associated with its business and advice management from time to time about the appropriateness of the company’s risk management policies and risk mitigation measures.

1 Risk relating to Revenues and Profits 

- Raw Material Supply 

  The primary raw material for manufacturing carbon black is carbon
  black feed stock oil, which is mostly imported from US Gulf coast and
  constitutes about 90-95% of the total raw material cost and about
  80-85% of cost of production. There is a risk of raw material supply
  and company tries to buy the raw material from 2-3 different blenders
  and also some volume from refineries to spread the risk. The company
  has also started buying from local refinery in Thailand to procure
  some volume locally to reduce dependence on imported raw material. The
  company has also started buying small quantities from other countries
  in Asian region to use as alternate feed stock.

- Fluctuation in raw material prices 

  The prices of carbon black feed stock oil is closely related to
  international crude oil price which fluctuate according to global
  market conditions. Crude oil prices have been very volatile due to
  several factors beyond the company’s control, such as global economic
  downturn, political stability and alternative energy consumption.
  During the year the crude oil prices were very volatile and were in
  the range of US$ 79 to US$ 92 per barrel and carbon black feed stock
  oil prices also moved in tandem with crude oil prices.

  The company always exercise prudent judgment in covering and buying
  the larger volumes of raw material when the oil prices are at low
  levels or vice versa for requirement for future periods by constant
  monitoring of world oil price and having regular discussions with
  energy specialist and by this company gets ample time to monitor oil
  prices closely and tries to buy again when oil prices are at lower
  levels.

  Going forward we will be following more prudent practice by buying
  lower volumes on monthly basis to take care of price volatility by
  spreading the pricing period covering all the months of the year.

- Carbon black selling prices 

  The prices of company’s product “Carbon Black” of various grades is
  generally governed by demand & supply situation in the world market,
  international price trend, oil prices in world market, industry
  situation, situation of auto industry and specific features of the
  product etc.

  The company has the policy of fixing the price with major customers on
  quarterly basis to provide stability in the prices. Also the company
  uses formula based selling prices with major customers to reduce price
  volatility.

  - Profit Margin

  Any further increase in world oil prices, slow economic recovery of
  global economic recession and its impact on economies of various
  countries, sharp reduction in demand / consumption and impact on
  Automobile industry etc will affect the company’s profit margins

  The ability to pass on the full impact of increased cost of raw
  material through higher selling prices of carbon black is limited due
  to competitive market condition of carbon black industry and the
  company may be able to pass on the impact of increase cost only
  partially.

2. Risk from Operations

- Risk from manufacturing operations 

The company has an exhaustive preventive and predictive maintenance system to ensure good health of all its manufacturing equipments. It also has a regulated system of operating equipments after normal useful life. The company is highly committed to safety. Besides a very high level of safety consciousness amongst all employees, generated through rigorous training and investment in all necessary safety equipment, the company conducts mock drills, emergency plan simulation etc. to ensure highest standard of alertness. The company have the robust system of near miss identification and rectification as part of its preventive maintenance system to reduce the chances of any breakdown substantially. The company also have emergency contingency plan in place.

  The company also has robust system of replacing the aging equipments
  in timely manner for better operational efficiency and also carries
  out planned maintenance activities regularly

- Risk related to environmental 

  Generally our production process is environmental friendly and does
  not generate any solid wastes. The liquid waste which is process water
  is fully recycled water in the process and now we are a zero discharge
  company. For this initiative of the company, we have received River
  Conservation & Restoration Outstanding Award from Ministry of Industry
  in 2009.

  The waste gas (flue gas) is combusted in dryer and boiler and flue gas
  is combusted through the stacks. Flue gas samples are collected and
  tested regularly which are within the maximum standard limits set by
  the government. In fact our company is the first Asian Carbon Black
  manufacturing plant to receive ISO 14001 certificates for ensuring the
  highest standards of environment cleanliness and company continuously
  monitors its pollution control system to adhere to the standards
  prescribed by authorities like ministry of industry. The actual levels
  are routinely monitored by the company, independent agency and
  government and any situation of improper treatment carries
  environmental and operation risk. The company assigns highest priority
  to remain well within the maximum allowable limit and has made
  substantial investment in the necessary equipments over the years for
  treatment of wastes.

  The company also has the cogeneration system of using the waste heat
  gases by recovering fully in the process and convert the same into
  steam and electricity thereby keeping the environment clean by not
  venting the gases in the atmosphere.

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

  We have also received the international awards like Deming Prize, TPM
  excellence award , Prime Minister Productivity and Thailand quality
  class award and these awards include stringent criteria for
  environmental control, which the company have positively demonstrated.

  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.

  Despite above the company perceives the risk of any accidental
  disturbance to environment to be medium to high.

  - Risk from storage and handling

  The company transports and stores its raw material carbon black feed
  stock oil which is highly viscous and have permissible sulphur
  contents and also its finished product carbon black which is in the
  form of small colloidal particles. The company follows all
  international standards stipulated for their safe transportation and
  storage. Though there has never been any accident relating to these
  products. The company perceives the risk of accident or misoperation.

3. Risk from Investment 

-   Risk from investment in other projects

  The company have investment in other companies in the field of carbon
  black, acrylic fibre, textiles, chemicals, CBFO blending / procurement
  etc. both in Thailand and overseas. While investing, company analyses
  and identifies all key risk involved and this includes economic
  situation / down turn, financial crisis and business risks such as
  competition, cost of capital environmental impact laws and
  regulations.

4. Financial Risk 

-   Interest rate and foreign exchange risk on loans

  The company does not have any foreign currency and Thai Baht loans and
  is therefore not exposed to either exchange rate or interest rate risk
  on loans.

-   Interest rate and credit risk on Short Term Investments

Interest rates fluctuates from time to time with international trends.
The company has surplus cash position, which are largely placed on short
term deposit mainly in Thai Baht. The rate variations impact the
interest income earned by the company. The company makes every effort to
exercise significant prudence in selecting healthy financial
institutions and fixing up credit exposure limit for each institution at
varying maturity tenors but not over one year for such investments.

-   Foreign currency volatility

  The company exports approx 40-45% of its production and at the same
  time the major raw material is almost fully imported. Both exports and
  import are dollar denominated.

  During the year, the company had situation of continued high raw
  material prices and there was a continuous deficit of US dollar after
  matching import payments with export earnings i.e. following the
  natural hedge policy and company follows the policy of uniform buying
  for net deficit of US dollars to avoid any exchange fluctuation, which
  is averaged out. More over as during the year the Thai Baht was
  stronger for most of the period, it was beneficial due to net deficit
  of US dollars. In the future, if Thai Baht becomes weaker it may
  impact the company.