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Risk Management

Risk factors

Toyo - Thai Corporation Plc. has realized the importance of risk management as an essential tool to enable the Company to achieves its objectives and goals, adding value to the Company, shareholders and other stakeholders.

The Board of Directors has stipulated an effective risk management process in order to manage risks. Then risk management working group under the oversight of Risk Management Committee has assessed both internal and external risk factors that may affect the Company's goals. The working group and the committee have considered and determined the necessary risk treatment plan, reviewed the sufficiency of policies, control measurement and controlling approaches, to maintain any identified risks at acceptable levels and being aligned with current situation.

In 2013, the Committee monitored and reviewed an overall risk management process of the Company which covered 4 risk Categories: Strategy Risk, Operational Risk, Financial Risk and Compliance Risk. The result of risk assessment done by taking an impact and likelihood of those risks into account, has been rated as high, medium and low risk levels. For high risk, the responsible senior management would take immediately rectification. For medium risk, the responsible senior management will determine necessary risk management plan and responsible management will carry out and oversee the implementation of the plan. For low risk, it would be executed and controlled by normal processes of the Company.

For the conclusion, there is no high risk and there are 5 medium risks as the following;

1. Risk on joint venture income

According to the Company's business development plan to provided EPC services together with joint investment in the project (EPC & Project investment business). As the Company has taken more of large scale projects, both in Thailand and overseas. So the investment capital, revenue and profit of the projects would have directly related to projects' scale. If there is any mistake in the execution of these large scale projects with high value, the liquidity and financial status of the Company may significantly affected.

However, before decided to invest in any project, the management would make an appropriate selective screening regarding to the projects and co-investor. The investment climate, project's feasibility, project's potential including the stability and continuity of project's return should be studied and considered for investment worthiness.

The Company will find out and compare the funding terms from each funding source, and try to choose the one that would be suitable with the needs of the Company. The qualification, experience and financial status of project's co-investor should also be considered, whether they are appropriate for the Company to co-invest with or not.

2. Risk from larger domestic and international project

From the Company's policy to expand its capability to taken bigger project, both domestic and international. If there is any mistake in the execution of these projects, the financial status of the Company may be significantly affected, especially for overseas projects. The execution of projects in foreign countries would have additional risks due to unacquainted with foreign business environment, social, cultures, law and regulations including political situation in such countries. Then before bidding in each project, the Company will analyze risk factors concerned with the project and will endeavor to minimize those risk factors as much as possible.

The Company policy in execution of oversea project is to aligned with local partner to minimized the risks derived from unacquainted with foreign business environment, social, cultures, law and regulations including political situation in that countries. The Company has emphasized that responsible project manager and management for the project must be carefully planned for project execution and monitors their progress closely to prevent an occurrence of potential problems.

In addition, for large scale projects both in Thailand and overseas, projects manager and responsible management shall prepare and implement project execution policy which taking into account the financial burden by attempting to identify the timing and amount of currency to be used in the project and communicate with finance department in advance, so the financial management for these projects would be done appropriately.

3. Risk on short term project and Risk from delayed handover the project to customer

For engineering design, procurement, and construction services business, the contract in general, will specified the project completion and handover date in advance, including liquidated damage compensation in case of the contractor fails to complete and handover the project on time. The liquidated damage compensation is different in each contract and could result in increased project costs until the contractor experienced loss.

Besides, the delay of project could also ruin contractor's reputation and cause them to lost the trust from other customers or loss their business opportunity in the future. So what has to be carefully considered is the project completion and handover date. Since each project would take an unequal time to execute, if the Company has been agreed to undertake the project without considering for the project's constructability, the Company may be faced with the problem of delayed handover which followed by penalty and other damages compensation that would affected Company's revenues and profits.

The Company has realized the damage that may occur from taken the project which has short time frame. Then before undertook any project, apart from information and data from project owner that are evaluated to determine the duration of project execution it also required the Company's experience, knowledge and skills to assess the possibility of the entire operation which should be consistent with the reality and the Company would used lessons learn from previous projects to improve project execution plan to be more concised and appropriated, to prevent problems and obstacles that may occur. So the project should be completed as specified in the plan.

In addition, the delayed on project handover may cause a breach of contract and the Company would be responsible for compensation payment. It may come from various reasons, for example, the complexity of the project, ineffective project management, delay of subcontractor's work, delay of delivery of machine, equipment and construction material by suppliers and the problem of weather which are the obstacles to carry out the projects to complete as planned.

The Company recognizes the damages that could arise from the delayed on project handover, either the liquidated damages payment or the loss of reputation. Then the Company has assigned the Planning and Project Control Division to monitor and control the execution of each project closely therefore, the management would know the progress and situation of each project and could provide the assistance to resolve any issues that may occur in a timely manner which makes an execution of various projects of the Company to be more effective.

4. The risk of supplier unable to deliver equipment as agreed by contract

Due to economic problems that occurred in many regions of the world may affect the suppliers who operate or locate in that region and cause the Company to face with problem arised from unable suppliers to deliver equipment as the agreed quality and time schedule as in the contract.

The conclusion of Company of the risk on such events can be reduced and controlled by considering an additional control measurement for the suppliers which are likely to be at risk of unability to deliver equipment with the agreed quality and time schedule in the contract, such as in the suppliers selection process. The responsible person should use information regarding to financial status of the suppliers as an evaluation criterion along with onsite assessment at the premises of the suppliers or to increase the frequency of inspection and /or monitoring during production period as appropriate.

5. Risk from foreign currency exchange

Other than the change in price of machinery, equipment, and construction materials, the project cost may also be vary by the result of currency fluctuation. In order to reduce the risk currency exchange volatility, the Company manages the risk by means of Natural Hedge or entering into a Currency Forward Contracts with financial institutes. Normally, the Currency Forward Contract maturity could be specified within one year and will have the assigned responsible person for these contracts.


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