Risk Policy

&

Procedures

SREE SAKTHI PAPER MILLS LIMITED

www.sreekailas.com

Introduction

Oxford Dictionary defines the term “risk” as a chance or possibility of danger, loss, injury or other adverse consequences

Risk management is attempting to identify and then manage threats that could severely impact or bring down the Company. Generally, this involves reviewing operations of the company, identifying potential threats to the company and the likelihood of their occurrence, and then taking appropriate actions to address the most likely threats.

Paragraph (C) of sub-clause IV of Clause 49 of the Listing Agreement states as under

“The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures. These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework”

The Ministry of Corporate Affairs, Government of India has also accepted the concept of Risk Management and its relevance to the smooth functioning of the Corporate sector in India and has therefore introduced a specific provision on Risk Management under paragraph (II) (C) of Corporate Governance voluntary guidelines, 2009

1.	Risk Management

i). The Board, its Audit Committee and its executive management should collectively identify the risks impacting the company's business and document their process of risk identification, risk minimization, risk optimization as a part of a risk management policy or strategy.

ii). The Board should also affirm and disclose in its report to members that it has put in place critical risk management framework across the company, which is overseen once every six months by the Board. The disclosure should also include a statement of those elements of risk, that the Board feels, may threaten the existence of the company.

It has therefore become mandatory for the listed Companies to prepare a comprehensive framework of risk management for assessment of risks and determine the responses to these risks so as to minimise their adverse impact on the organisation.

2.	Risk Strategy:

The Company (SSPML) recognises that risk is an integral and unavoidable component of business and is committed to managing the risk in a proactive and effective manner.

The Company believes that the Risk cannot be eliminated. However, it can be:

•	Transferred to another party, who is willing to take risk, say by buying an insurance policy or entering into a forward contract; 

•	Reduced, by having good internal controls; 

•	Avoided, by not entering into risky businesses; 

•	Retained, to either avoid the cost of trying to reduce risk or in anticipation of higher profits by taking on more risk. 

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The product of company is KRAFT Paper for manufacturing Carton Boxes. 

The common risks inter alia are: Regulations, Competition, Business risk, Technology obsolescence, Investments, retention of talent and expansion of facilities.

For managing Risk more efficiently the company would need to identify the risks that it faces in trying to achieve the objectives of the firm. Once these risks are identified, the risk manager would need to evaluate these risks to see which of them will have critical impact on the firm and which of them are not significant enough to deserve further attention.

As a matter of policy, these risks are assessed and steps as appropriate are taken to mitigate the same.

3.	Risk Management Framework

Objectives must exist before management can identify potential events affecting their achievement. Enterprise risk management ensures that management has in place a process to set objectives and that the chosen objectives support and align with the entity’s mission and are consistent with its risk appetite.

The Objectives of the Company can be classified into

A.	Strategic:

•	Organizational Growth. 

•	Sustenance and Growth of Strong relationships with dealers/customers. 

•	Expanding our presence in existing markets and penetrating new geographic markets. 

•	Enhance our capabilities through technology. 

B.	Operations:

•	Consistent Revenue growth. 

•	Consistent profitability. 

•	High quality production. 

C.	Compliance:

•	Ensure stricter adherence to policies, procedures and laws/ rules/ regulations/ standards. 

The Company has constituted a Risk Assessment and Minimization Committee with functional heads and the Company Secretary as members. The Committee will submit its periodical report to the Board about the measures taken for mitigation of Risk in the organisation

We consider activities at all levels of the organization with focus on three key elements, viz.

A.	Risk Assessment 
B.	Risk Management 
C.	Risk Monitoring. 

A.	Risk Assessment

Risks are analysed, considering likelihood and impact, as a basis for determining how they should be managed.

Risk Assessment consists of a detailed study of threats and vulnerability and resultant exposure to various risks

To meet the stated objectives, effective strategies for exploiting opportunities are to be evolved and as a part of this, key risks are identified and plans for managing the same are laid out.

B.	Risk Management and Risk Monitoring

In the management of Risk the probability of risk assumption is estimated with available data and information and appropriate risk treatments worked out in the following areas:

I.	Market conditions

Strategically, we seek to continuously expand the customer base to maximise the potential sales volumes and at the same time securing additional volumes from existing customers on the basis of our record of satisfactory performance in our earlier dealings. The efforts to enhance quality of products and upgrading their performance parameters are aimed at deriving optimum value from the existing customer base and targeting a larger customer profile

To counter pricing pressures caused by strong competition, the Company has been increasing operational efficiency and continued to take initiatives to move up the quality control scale besides cost reduction and cost control initiatives.

II.	Fluctuations in Foreign Exchange

We manage risk on account of foreign currency fluctuations through limited hedging of specific transactions with our Bankers. Our risk management strategy is to identify risks we are exposed to, evaluate and measure those risks, decide on managing those risks, regular monitoring and reporting to management. The objective of our risk management policy is to minimize risk arising from adverse currency movements by managing the uncertainty and volatility of foreign exchange fluctuations by hedging the risk to achieve greater predictability and stability. Without venturing into the speculative aspects of dealing in currency derivatives, we aim to cover foreseeable fluctuations with limited hedge cover so that moderate arbitrage efficiency is achieved against the existing borrowing rates of interest. Our risk management policies are approved by senior management and include implementing hedging strategies for foreign currency exposures, specification of transaction limits; identification of the personnel involved in executing, monitoring and controlling such transactions.

III.	Political Environment

Risks that are likely to emanate are managed by constant engagement with the Government of the day, reviewing and monitoring the country’s industrial, labour and related policies and involvement in representative industry-bodies.

However, efforts to bring down the cost of production are being implemented with a reduced workforce. Establishment of captive power generation in the factory area itself.

IV.	Cost Structure

The cost of revenues consists primarily of raw materials. The cost of revenues has a very high degree of inflationary certainty. To de-risk, the Company has established specific policies for procurement of long delivery and strategic raw materials and stores and those amenable to just-in-time inventories.

At organizational level, cost optimisation and cost reduction initiatives are implemented and are closely monitored. The Company controls costs through budgetary mechanism and its review against actual performance with the key objective of aligning them to the financial model. The focus on these initiatives has inculcated across the organization the importance of cost reduction and control.

V.	Quality and Project Management

For years SSPML is engaged in manufacture production of Kraft Paper for various industries as per mutually accepted requirements of the Customers.

Our Commitment towards total Quality Management is to forge the Human Resources of our organisation into a team that promotes continual improvement in quality of products and services.

VI.	Environmental Risk Management:

The Company endeavours to protect the environment in all its activities, as a social responsibility.

For control of water pollution the Company has setup an effluent treatment plant at the Mill. Effluent water is further used for gardening and plantation and the industrial wastewater generated from the plants is re-circulated into the process.

VII.	Human Resource Management

“The vision of the Company is to achieve Organisational excellence through innovation”

SSPML’s Human Resources Development (HRD) Department will add value to all its Units by ensuring that the right person is assigned to the right job and that they grow and contribute towards organisational excellence.

Risk in matters of human resources are sought to be minimised and contained by following a policy of providing equal opportunity to every employee, inculcate in them a sense of belonging and commitment and also effectively train them in spheres other than their own specialisation. Employees are encouraged to make suggestions on innovations, cost saving procedures, free exchange of other positive ideas relating to manufacturing procedures etc. It is believed that a satisfied and committed employee will give of his best and create an atmosphere that cannot be conducive to risk exposure.

Employee-compensation is always subjected to fair appraisal systems with the participation of the employee and is consistent with job content and individual performance. Packages are inclusive of the proper incentives. 

VIII.	Culture and Values.

Our core values:

•	Pursuit of Excellence 
•	Workers’ Welfare 
•	Productivity 
•	Safety 
•	Industrial Relations 
•	Environment Improvement 

These are guiding parameters for all our initiatives.

Over the years, company has consistently followed the practice of adhering to certain cultures and values in internal and external management and every employee is made aware of such practices and the logic behind them. It is the company’s belief that every employee is attuned to follow fair practices and uphold its fair name in every field they are involved.

Further, the Company’s website, www.sreekailas.com provides an overview of the organization’s direction, design, culture, processes, product range, policies and practices. This site is also accessible to the public, which is updated periodically.

4.	Risk mitigation measures:

•	The Company functions under a well defined organization structure. 

•	Flow of information is well defined to avoid any conflict or communication gap between two or more Departments. 

•	Proper policies are followed in relation to maintenance of inventories of raw materials, consumables, key spares and tools to ensure their availability for planned production programmes. 

•	Effective steps are being taken to reduce cost of production on a continuing basis.

A.	Liquidity Risks: 

•	Financial solvency and liquidity risks 
•	Borrowing limits 

•	Cash management risks 

Risk Mitigation Measures:

•	Proper financial planning is put in place with detailed Annual Business Plans discussed at appropriate levels within the organisation. 
•	Annual and quarterly budgets are prepared and put up to management for detailed discussion and an analysis of the nature and quality of the assumptions, parameters etc. 

•	These budgets with Variance Analysis on monthly basis are prepared to have better financial planning and study of factors giving rise to variances. . 
•	Cash management services are availed from Bank to avoid any loss of interest on collections 
•	Exposures to Foreign Exchange transactions are supported by forward cover to protect undue fluctuations in rates etc. 
•	All active bank amounts are reconciled on monthly basis with the bank statements to track and control bank transactions.

B.	Credit Risks: 

•	Risks in settlement of dues by dealers/customers 
•	Provision for bad and doubtful debts 

Risk Mitigation Measures: 

•	Systems put in place for assessment of creditworthiness of dealers/customers. 

•	Provision for bad and doubtful debts made to arrive at correct financial position of the Company. 

•	Appropriate recovery management and follow up. 

C.	Market Risks / Industry Risks: 

•	Demand and Supply Risks 
•	Quantities, Qualities, Suppliers, lead time, interest rate risks 

•	Raw material rates 

•	Interruption in the supply of Raw material 

Risk Mitigation Measures:

•	Raw materials are procured from different sources at competitive prices. 

•	Alternative sources are developed for uninterrupted supply of raw materials.
 
•	Demand and supply are external factors on which company has no control, but however the Company plans its production and sales from the experience gained in the past and an on-going study and appraisal of the market dynamics, movement by competition, economic policies and growth patterns of different segments of users of company’s products. 

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•	Proper inventory control systems have been put in place. 

D.	Human Resource Risks: 

a). Labour Turnover Risks, involving replacement risks, training risks, skill risks, etc.
b). Unrest Risks due to Strikes and Lockouts.

Risk Mitigation Measures:

•	Company has proper recruitment policy for recruitment of personnel at various levels in the organization. 

•	Proper appraisal system for revision of compensation on a periodical basis has been evolved and followed regularly. 

•	Employees are trained at regular intervals to upgrade their skills. 

•	Labour problems are obviated by negotiations and conciliation. 

•	Activities relating to the Welfare of employees are undertaken. 

•	Employees are encouraged to make suggestions and discuss any problems with their Superiors. 

E.	Disaster Risks:

•	Natural risks like Fire, Floods, Earthquakes, etc. 

Risk Mitigation Measures:

•	The properties of the company are insured against natural risks, like fire, flood, earthquakes, etc. with periodical review of adequacy, rates and risks covered under professional advice. 
•	Fire extinguishers have been placed at fire sensitive locations. 

•	First aid training is given to watch and ward staff and safety personnel. 

•	Workmen of the company are covered under ESI, EPF, etc., to serve the welfare of the workmen. 

F.	System Risks: 

•	System capability 
•	System reliability 

•	Data integrity risks 

•	Coordinating and interfacing risks 

Risk Mitigation Measures:

•	EDP department maintains repairs and upgrades the systems on a continuous basis with personnel who are trained in software and hardware. 

•	Password protection is provided at different levels to ensure data integrity. 

•	Licensed software is being used in the systems. 

•	The Company ensures “Data Security”, by having access control/ restrictions. 

G.	Legal Risks: 

These risks relate to the following:

•	Contract Risks 
•	Contractual Liability 

•	Frauds 

•	Insurance Risks 

Risk Mitigation Measures:

Following are the Risk mitigation measures adopted by the Company to mitigate the risks relating to Legal aspects:

•	A study of contracts with focus on contractual liabilities, deductions, penalties and interest conditions is undertaken on a regular basis. 

•	The Legal department vets all legal and contractual documents with legal advice from Legal retainers for different branches of legislation. 

•	Contracts are finalized as per the advice from legal professionals and Advocates. 

•	Insurance policies are audited to avoid any later disputes. 

•	Comprehensive insurance cover.

•	Prompt Lodging Of claim.

•	All the reporting requirements of insurance company to be followed meticulously.

•	Timely payment of insurance and full coverage of properties of the Company under insurance. 

•	Internal control systems for proper control on the operations of the Company and to detect any frauds. 

•	Legal risk should be duly covered keeping in view the various international/ domestic trade guidelines. Export/Import contract to be drafted as per the international trade practices and all contracts/ agreements must be got vetted by finance and law division.

•	The Statutory provisions to be complied with and contract to specify those clearly.

•	Trade fraud can be minimized by proper selection of buyer of goods standing, as far as possible all export LC should be got confirmed by any scheduled commercial bank and the payment should be obtained directly from confirming bank’s counter.

•	There should be clarity in terms and conditions of letter of credit.

H.	Banking Risk

•	Documents to be properly scrutinized before releasing the payment. Quality specifications should be clearly specified and in line with international standards.

•	Banking risk should be minimized by accepting thr LCs from the prime bank of international repute.

I.	Country Risk

•	Country of export should be analyzed with particulars like political, sociological, and technological status.

•	Seeking guidance from the high commission/embassy.

J.	Documentation Risk

•	All contarcts (Sale/Purchase) to be entered into duly vetted by Law Division and Associate finance.

•	LC/BG format favouring the company shall also be standardised with due concurrence of associate finance and Law Division and shall be hoisted to intranet of the company.

K.	Statutory Risk

•	All VAT/Sales Tax/ Excise /Income Tax/ Custom Duty to be compiled with strictly.

•	Returns (Weekly/ Monthly/quarterly/Annually) to be filed before the stipulated time with concerned authorities.

•	Applicable statutory taxes to be collected from the customer before delivery of material.

•	All requisite records to be maintained properly & preserved for verification by the concerned authorities.

L.	Foreign Exchange and Interest Rate Risk Management: 

a)	Exposures

•	The Company has foreign currency exposures in the form of letter of credit availed from banks.

b)	Risk Identification

•	Foreign currency exposures are recognized from the time a letter of credit is opened and bills are accepted by us.
•	All exposures are considered month wise for the current year   and quarter wise for later exposures.

c)	Risk Measurement

Measurement of the risk will be done through the net open position in a currency. The net open position is the difference between un-hedged receipts and payments in each currency. 

The stop loss level has to be applied in relation to a benchmark. The forward exchange rate applicable as on closing date of every calendar month will be used as the benchmark.

As per our Board’s policy, minimum 75% of forex exposure, at any point of time, should be covered by way of forward cover. Based on forex fluctuation, we ensure that minimum of 50% is covered.

d)	Risk Control

•	Risk limitation or reduction is the prime objective in framing the policy. 

•	Company’s bankers are consulted and suitable exposures in the form of limited buyers’ credit and other instruments are evolved to mitigate exchange rate fluctuations as well as in interest rates tied to LIBOR and other like rates. 

•	To minimize the Forex Risk proper hedging of the foreign currency to be undertaken through forward covers/options.

•	In case of back to back export/import, actual exchange rate of realization/ remittance should be applicable for domestic associate. In such Transactions, forex exposure must be hedged immediately on the date of transaction itself at the cost of associate i.e immediately on start of the forex exposure

M.	Disclaimer Clause 

The Management cautions readers that the risks outlined above are not exhaustive and are for information purposes only. Management is not an expert in assessment of risk factors, risk mitigation measures and management's perception of risks. Readers are therefore requested to exercise their own judgment in assessing various risks associated with the Company.

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