Risk Management for Emerging risk , Impact and Mitigation plan

Risk Factors Affecting the Company’s Business Operations

Risks to the Company or Group’s Business Operations

The company conducts a comprehensive analysis and assessment of the environment, considering both internal and external factors, the organization’s goals, and strategies, as well as economic trends, industry dynamics, technological advancements, competitors, and other global, regional, and national trends. This thorough planning process aims to identify and evaluate significant risks that could impact operations and the achievement of the organization’s objectives. Subsequently, the company formulates a risk management plan to mitigate the potential impacts of these risks, grounded in a well-defined risk management framework that is consistent with commitment to sustainable business development. In the year 2023, the company has evaluated and established critical risk management plans as follows:

• Strategic risks

(1) Risk from competition in the industry

The automotive industry faces increasing competitive pressure, significantly influenced by competition with component manufacturers in low-cost countries. These manufacturers benefit from lower raw material costs due to local steel resources and labor advantages, enabling them to offer more competitive pricing.

Risk Management

The company is prepared and actively manages risks to minimize impacts by sourcing and developing raw materials in collaboration with partners. The company also ensures product quality by integrating technology and automation to reduce waste and enhance production efficiency, thus maintaining cost competitiveness. Furthermore, the company is committed to managing and fostering trustful relationships with customers at all levels, maintaining enduring associations with all customer groups. Continuous monitoring of customer needs and seeking business opportunities for new product expansion are critical to our strategy. These measures are in place to mitigate the aforementioned risks and to ensure business performance aligns with ongoing business plans.

(2) Risk from investment expansion

The company has expanded investments into the automotive components and electric vehicle system platforms, as well as into the development, production, and distribution of mechanical machinery and agricultural equipment, aligning with the set goals and strategic directions. This move represents a significant pathway to fostering new business development and growth. The investments and operations of the associated joint ventures and subsidiaries have underlying risks, as they are in the early stages of project or business development. There are various uncertainties and challenges that the company must manage, including equipment procurement, partner management, capital management, investment costs, assigning suitable project managers, and knowledgeable and skilled workers. Other factors include the impact of climate change on testing in the agricultural machinery sector. These risk factors could potentially impact the performance of new business development projects, deviating from the objectives and targets.

Risk Management

The company has measures to manage these potential risks by recruiting knowledgeable, capable, and experienced individuals and appointing company representatives to serve as directors in joint ventures. This ensures close monitoring and review of operations and regular meetings between the company’s senior management and the business partners. Additionally, there is a focus on developing expertise in engineering and modern technology to enhance the company’s capabilities. Furthermore, the company conducts thorough feasibility studies and evaluates the investment value while considering all internal and external factors comprehensively. This is to define the structure and policies for the joint ventures and subsidiaries, considering potential opportunities and risks. There is an ongoing development of tools to monitor the status of investments and to provide progress reports to the board of directors continuously. The company also establishes high control standards to ensure that investments and operations are efficient and achieve the set goals.

• Operational Risks

(1) Risk from Declining Production in the Pickup Truck and Agricultural Machinery Sectors Due to Economic Factors

The country’s economic situation is experiencing a slowdown, with household debt remaining at consistently high levels. Additionally, a significant number of vehicles, particularly pick-up trucks, are being repossessed due to owners’ inability to make payments. These factors have prompted banks to tighten credit issuance, especially for auto loans, affecting the public’s purchasing power and consequently decreasing domestic automotive production volumes.

Risk Management

The company is aware of the potential impacts of such risks and has adjusted its production to align with changing demands. It seeks new sales channels by increasing export opportunities Somboon Advance Technology Public Company Limited 75 expanding the product range in current markets, and entering new countries. These strategies aim to mitigate potential operational impacts arising from these risks.

(2) Risk related to Succession Planning for Critical Positions

The company recognizes the importance of managing risks associated with developing successors for key positions. It has developed a succession plan to ensure business continuity should key personnel retire, transfer, resign, become incapacitated, or pass away. Without prior planning, the interruption of operations, decision-making, and subsequent business performance may occur.

Risk Management

The company manages this risk by structuring the organization to support efficient operations and by considering manpower planning. The key process is the establishment of a Succession Planning for Management and Critical Positions. The company conducts a Competency Gap Analysis to develop the identified successors through an Individual Development Plan (IDP), both short-term and long-term, to bridge the competency gaps identified in the assessment This ensures seamless and smooth business operations.

(3) Cyber Security Risks

The ease and speed of technological advancements in accessing information pose risks to the security of the company’s information systems. Without adequate protective measures, the company could face damage to its image, reputation, and stakeholder confidence.

Risk Management

The company prioritizes data security, including all stakeholders’ information within the value chain. It has implemented a cybersecurity policy and information technology system, conducting risk assessments based on main customer assessments. There are emergency plans for IT systems and measures for managing, monitoring, and assessing risks, such as conducting Cyber Security Maturity Risk assessments using the NIST Framework. The importance of Cyber Security is communicated through the official “Somboon” Line account, and personnel are assigned to assess and monitor risks with Key Risk Indicators evaluated monthly. These findings are presented at the organizational risk committee meetings for evaluation and consideration.

• Financial risk

(1) Raw Material Price Volatility

The volatility of raw material prices, especially the price of steel which is a principal component in the manufacturing process, poses a risk that affects the uncertainty in selling prices and the overall profitability.

Risk Management

The company has established a strategy to manage the risk associated with the volatility of raw material prices. This includes considering provisions for product price adjustments in sales contracts in line with changing costs and conforming to industry standards. The company engages in ongoing negotiations with customers for the contractual periodic adjustment of selling prices. Additionally, efforts are made to source and develop new raw material supplies to mitigate the impact of price volatility.

• Compliance Risks

(1) Risk related to Changing Standards and Regulations

The business is subject to continually evolving standards, regulations, and measures, such as the new financial reporting standard TFRS 17 on insurance contracts, which will come into effect on January 1, 2025, or the preparation for the implementation of the sustainability disclosure standards IFRS S1 and S2. These represent challenges that the company must be prepared to comply with in a manner that the relared disclosure and reports are verifiable, comparable, comprehensive, and consistent

Risk Management

The company has measures in place to manage these risks by regularly reviewing and studying all relevant business regulations. This includes training employees on these changes and developing policies to accommodate various new standards, appointing responsible individuals, and establishing working groups as necessary. Additionally, for sustainability data, the company is enhancing its database capabilities by implementing an ESG Data Platform to improve the efficiency of data retrieval, access, and compilation for the company’s ESG information management.

• Environmental, Social, and Governance (ESG) Risks

The company has adopted sustainable business practices, especially in the area of ESG, which encompasses environmental management, social responsibility, and good governance as strategic risk management tools to ensure stakeholder confidence. The company has identified the following risk factors and actions:

(1) Risk from Climate Change

The global recognition and the perceived impacts of climate change have been underscored at international meetings such as the 28^th Conference of the Parties to the UN Framework Convention on Climate Change (COP28) held in Dubai, United Arab Emirates, in late 2023. The focus on climate change and the agreement on transitioning away from fossil fuels were key outcomes. In Thailand, the El Niño phenomenon in 2023 led to higher temperatures, along with a reduction in water storage compared to previous years and erratic rainfall patterns, impacting agricultural yields and potentially altering the production volumes in the agricultural machinery sector.

Risk Management

The company acknowledges the significance of this risk and aims to be part of the solution to climate change issues, with the goal of reducing greenhouse gas emissions, taken actions to combat global warming, and continuously managed energy, such as using clean energy sources like solar cells, improving the use and maintenance of existing machinery, and applying digital technology to enhance energy efficiency. These initiatives are part of the mechanism to reduce greenhouse gas emissions. In terms of agricultural tractor components production, the company has adjusted its production processes to be more flexible, including planning for raw material preparation, production planning, and inventory management, to promptly and efficiently adapt to changing situations.

(2) Human Rights Risk

The company is committed to equitable and fair treatment of its workforce, adhering to international labor standards, the Thai Labor Protection Act, and Thai labor standards, as well as other relevant laws and regulations. With the company’s diverse workforce and multiple regional offices, it manages information dissemination and creates an environment that promotes cooperation and mutual understanding.

Risk Management

The company and the group acknowledge and respect human rights in all aspects of every individual, as well as society and communities, according to the laws of the country and international agreements to which each country is bound. The company evaluates and acts in accordance with the law, continuously applying international human rights principles, such as the Thai Labour Standard TLS 8001-2020, the United Nations Guiding Principles on Business and Human Rights (UNGP), and the Guide to Human Rights Impact Assessment and Management (HRIAM). It reviews and enforces human rights policies and has various channels for receiving complaints, such as suggestion boxes and company whistleblower systems. To date, no issues have been identified.

(3) Supplier Risk

With the business philosophy of “Somboon Triple Bottom Line” which includes “Smart People, Business Trust, and Growth Society”, the company promotes and develops suppliers to follow the company’s sustainable business practices. Despite these efforts, leading suppliers to declare their intent to follow the Thai private sector’s collective action against corruption (CAC) remains a challenge in implementing tangible business practices. Moreover, the company assesses supplier risks through the Functional Risk Management (FRM) process of the procurement unit.

Risk Management

The company prioritizes efficient supply chain management and integrates sustainable development practices throughout the supply chain. It has continuously provided knowledge and communicated ethics to suppliers participating in collective action against corruption (CAC). The company also has a plan to promote this by implementing with target suppliers for declaration. Additionally, the company conducts initial environmental, social, and good governance risk assessments an communicates with suppliers according to the code of conduct and guidelines for suppliers. The company also prepares training and economic risk assessments for suppliers through its annual supplier conference, which aims to elevate suppliers to grow sustainably together.

• Emerging Risk

(1) Supply Chain Risk

The ongoing geopolitical conflicts, such as the war between Russia and Ukraine, and tensions between Israel and Hamas, impact the company’s strategies and operations. For instance, there can be shifts in energy and fuel prices, increased transportation costs, and delays in shipping that may exceed deadlines. Trade measures between the U.S. and China directly affect the automotive industry’s supply chain and, consequently, the automotive component manufacturers in Thailand. An analysis of the impact of such events on critical suppliers, particularly steel used in production, can be concluded that there was no impact from these incidents that would cause disruption to relevant transportation route in supply chain.

Risk Management

The company closely monitors and keeps abreast of news related to these risk factors. Comprehensive impact analyses, both internal and external, are conducted, including the management of measures to mitigate potential impacts. For example, with longer transit time due to shipping lines rerouting to avoid the Red Sea, the company has adjusted its policy by appropriately increasing overseas inventory levels to meet customer demands and diversifying transportation routes to ensure timely response to customer needs.

Investment Risks for Security Holders

The risk of uncertainty in the expected returns to investors is contingent upon the company’s performance and its long-term growth, which could be influenced by various factors such as:

• The production volumes of automobiles in Thailand
• The production volumes of agricultural machinery in Thailand
• Changes in policies, laws, regulations, or conditions affecting the automotive and agricultural machinery industries
• Increases in production costs due to rising raw material and energy prices
• Economic conditions, crises, and unusual situations, such as the slowdown of the Thai economy impacting domestic demand and automobile production, and the Red Sea crisis directly affecting the export of automotive components abroad.

These factors may impact the company’s operations and stock price

Risk that dividend payments may not meet investors’ expectations

The ability to pay dividend depends on several factors, such as maintaining sufficient reserves for business operations, regular investment budgets, and reserves for business expansion. Thes factors could affect the level of cash available for dividend payments to shareholders. However, the company has a policy to pay dividends of no less than 30% of net profits after deducting various types of reserves as required by law and company regulations.

Risks of Investing in Foreign Securities (In cases where the issuer is a foreigncompany)

-None