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Risk Management

The Company's risk management has consistently been developed since the establishment of the Risk Management Committee in 2013 to oversee the risk management of the company by issuing the policies and creating the framework. The Committee makes certain that appropriate level of risk management has been taken and informs the board of directors on matters of significant risks. In 2014, the Company developed its risk management systems by extending from the direction implemented by EY office Limited, the consulting firm, in accordance with the international standards of COSO ERM (Enterprise Risk Management - Integrated Frame work, the Committee of Sponsoring Organizations of the Treadway Commission) and ISO 31000 (Risk Management, Australian/New Zealand Standards: AS/NZ ISO 31000:2009).

Risk Management Committee Charter

Purpose

Risk Management Committee (RMC) is assigned by the Board of Directors to oversee the effectiveness and efficiency of the Company's Enterprise risk management process. Risk Management Committee Charter is developed to define a framework of risk management activities, authority, roles and responsibilities for RMC and to support RMC in the oversight of the effective risk management.

Composition and qualification

Risk Management Committee is appointed by the Board of Directors. Members of RMC shall be the Company's management and/or qualified person with at least one being a member of the Board of Directors. RMC should comprise of neither less than five nor more than nine members.

  • Members of RMC shall possess the expertise and knowledge in the Company's business and provides recommendation in the Company's risk management.
  • RMC shall have a three-year term of office. A member, whose term has expired, shall be re-appointed by the Board of Directors to resume his/her duty.
  • Risk Management Committee shall lose his/her membership when the end of the term, resignation, ceasing from being a Company's Board member or management, or death.
  • In case of the member of Risk Management Committee losing his/her membership prior to the end of the term, the Company's Board member, management and/or qualified person shall be newly appointed to replace the former member. The newly appointed member shall be in a position only for the remaining term of the former member.
  • The remuneration of Risk Management Committee shall be proposed by the Nomination and Remuneration Committee and approved by the Board of Directors on an annual basis.
Authority, Duties and Responsibilities
  • Establish the risk management policy and framework.
  • Continuously monitor and develop the risk management framework and risk management process of company and its subsidiaries, aligned with international guidelines.
  • Oversee the continuous activities of assessment, analysis and review of the Company and its subsidiaries' significant risks, under normal and crisis condition.
  • Consider and provide comment on the Company's risk appetite and risk assessment criteria.
  • Acknowledge and provide comment on the adequacy and appropriateness of risk assessment results and mitigations.
  • Oversee the implementation of risk management, aligned with the risk management framework.
  • Regularly report the Company's significant risks, mitigations and improvement to the Board of Directors.
  • Encourage risk management culture and cooperation in the Company and its subsidiaries.
  • Oversee and support risk management function to be aligned with the Company's policies and objectives.
  • Communicate and share the information of significant risks and mitigations with Audit Committee at least yearly.
  • Provide comments and recommendations on the use of external advisor regarding risk management framework, scope and implementation.
  • In case of workload over resources of Risk Management Department, provide comments and recommendations on the use of external service provider in assisting risk management function.
Meetings
  • RMC shall hold regular meetings at least quarterly, as appropriate.
  • At least half of all RMC members must attend the meeting.
  • RMC shall invite other parties to attend the meeting, as appropriate.
  • The resolution of the meeting shall be on majority basis. In case of equal voting, Chairman of RMC shall decide.
  • Chairman of Risk Management Committee shall call a special meeting to consider significant risks or other issues, as necessary.
  • RMC shall hold a meeting with Audit Committee at least yearly.
  • Secretary of Risk Management Committee or Risk Management Manager shall be responsible for the meeting appointment and arrangement by confirming the meeting date, time, venue and agenda, and distributing related documents in advance of the meeting to each RMC member. The minutes of the meeting shall be prepared and submitted to RMC after the meeting.
Reporting

Risk Management Committee shall report the results to the Board of Directors and prepare Risk Management Committee report to be disclosed in the Company's annual report.

Self-evaluation

Risk Management Committee shall perform self-evaluation of their performance at least yearly and report the results to Board of Directors, also shall improve the performance efficiency and objective achievement following to the evaluation.

Review and amendment

Risk Management Committee shall review and amend the charter, as appropriate or at least yearly, to ensure that the content of the Charter is aligned with the risk management policies and objectives. The review and update shall be approved by the Board of Directors.

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Risk Management Committee

Name Position Risk Management Position
1. Mr. Kirati Assakul Independent Director Chairman of Risk management Committee
2. Mr. Sakdi Kiewkarnkha Chairman of Audit Committee/ 
Independent Director
Member of Risk management Committee
3. Dr. Thamnoon Ananthothai Audit Committee/ Independent Director Member of Risk management Committee
4. Mr. Thiraphong Chansiri President & CEO Member of Risk management Committee
5. Mr. Joerg Ayrle Group CFO Member of Risk management Committee
6. Mr. Chan Shue Chung Head of Group Human Resources Member of Risk management Committee
7. Mr. Wai Yat Paco Lee General Manager - Investor Relations 
and Corporate Investment
Member of Risk management Committee
8. Dr. Darian McBain Group Director, Sustainable Development Member of Risk management Committee
9. Dr. Sven Massen Director of Group Strategy Member of Risk management Committee

Risk Factor 2015

Thai Union Group (Public) Company Limited recognize the importance of strong, systematic risk management, be consistent with international standards and promote continuous development. Corporate risks will be assessed and managed properly, especially significant risks above the tolerance level which must have defined mitigation plans, consistently monitored risk status, and reported the progress of mitigation plan to top management and the Risk Management Committee every quarter.

In spite of the company’s comprehensive risk management to ensure risk levels will be under tolerance level, in 2015, the company encountered several uncontrollable external risks which had to be responded to carefully. The most significant external risk factors were the reputation of Thailand with regards to IUU fishing and unfair labor practices; the volatility of global tuna and shrimp prices; fluctuation in currency exchange of US dollar and euro against Thai baht. All these factors impacted the performances of the company and its subsidiaries in the United States of America and Europe. Additionally, the company’s strategy of expansion through overseas investments, meant post-merger & acquisition risks in maximizing the value of newly acquired businesses were encountered, along with challenges regarding the laws and regulations of the various countries where the company invested.

However, the company’s risk management strategy enabled it to significantly mitigate the impacts to the business.

In 2015, the corporate risks was identified and assessed within the framework of risk management and can be summarized in the following risk profile.

1. STRATEGY RISKS
Reputation of Thailand on fisheries

The negative reputation of the Thai fishing industry in 2015 had a significant impact on Thailand’s seafood industry. Thailand was assessed by the European Union (EU) under the Illegal, Unreported, Unregulated Fishing (IUU) Regulation and was placed at the yellow level warning to accelerate improve the situation. The assessment results from the EU had a direct impact on consumers’ confidence in the Thai seafood industry and additionally, EU’s import quantity as European consumers take into account legal fishing and environmental sustainability in their purchasing decisions

Company’s operational guidelines

With adherence "Doing the right thing in the right way”, the company is committed to source only from legal and sustainability fishing suppliers. Moreover, the company has appointed the Sustainable Development Committee chaired by the Chairman of the Executive Committee to steer the direction for sustainable development and responsible sourcing is one of five sustainability pillars

In 2015, the company launched a revised and stringent version of the Business Ethics and Labor Code of Conduct. Compliance with the Code of Conduct is a mandatory requirement for the company and subsidiaries’ suppliers and partners. The Company did monitor and audit suppliers and partners on a regular basis, and any who fail to comply will be contract terminated and process legal action. This to ensure that the company is sourcing raw materials legally and boost confidence to stakeholders which include customers, consumers, investors and employees.

Nevertheless, IUU fishing is a national issue which demands cooperation from government and multi-sector to resolve. Therefore, the company has collaborated with the government, industrial partners and private organizations to develop and implement solutions to reduce the possibility of IUU fishing.

Reputation of Thailand in Labor Practice

Despite the Thai government has made a concerted effort to fully address the issue of unfair labor practices in the seafood industry. These measures ultimately gained importance due to downgrading of Thailand to Tier 3 in the American Trafficking-in-Persons (TIP) report. Consequentially, the United States of America (U.S.A) could apply measures designed to sanction Thai products such as fish and shrimp which had a direct impact on Thailand’s seafood processing industry.

However, in 2015, risk in unfair labor practice still significant, particularly in the fishing industry, which was experiencing labor shortages. The Thai government was aware of situation and has taken serious action in many areas to resolve unfair labor practices by arresting offenders; issuing measures to reduce the possibility of human trafficking and encouraging Thai fishing operators to operate under a fair legal framework.

Company’s operational guidelines

The company’s policy on fair labor practices for both Thai and migrant laborers has been clearly communicated and demonstrated throughout its operations and subsidiaries. In the last year, the company has extended the responsible labor practices to cover the whole supply chain which include the partners and suppliers of the company and subsidiaries to comply with the new Business Ethics and Labor Code of Conduct.

In December 2015, the company terminated all business relationships with all pre-processing establishments (PPE) for aquatic animals (shrimp). The process was brought under the direct control of the Company to better protect workers’ rights in the supply chain. For in-house migrant workers and foreign employees, the Company communicate their rights, which include the right to association; the right to collective bargaining; as well as the operational framework for safety and health at work, and provided with a fair wage.

To promote fair labor practices in Thailand, the company has implemented other measures in cooperation with many other organizations from both the government and private sectors. One example is the Company’s work with the Shrimp Sustainable Supply Chain Task Force. As a member of this organization, which works to ensure Thailand’s supply chain is free of forced labor, the company has engaged an independent international auditor to audit its supply chain.

Risks in investment management

Due to its strategy for continual expansion of domestic and overseas investment to support its status as the world’s most reliable seafood leader, the company has investing in 46 companies’ subsidiaries and joint-venture companies both in Thailand and abroad as of 31 December 2015. The business of its subsidiaries and joint-venture companies is partly the same and partly different, and the management guidelines are often different to various regional factors and practices which can include political, economic, social, and cultural issues. These have exposed the Company to Post-Merger & Acquisition risk

In December 2014, the company signed an agreement for the acquisition of Bumble Bee Foods LLC, a manufacturer and distributor of canned tuna in the U.S.A., to enhance the marketing competitiveness of ready-to-eat seafood products. The acquisition required the approval from the U.S. Department of Justice.

However, in December 2015, both the company and Lion Capital have vigorously advocated the merits of the deal to the U.S. Department due to there was a possibility that the U.S. Department of Justice’s consideration would take a longer time than that specified in the Share Purchase Agreement.

The company’s termination of the acquisition agreement had no impact on its business operations, and it is still be committed to marketing seafood in North America.

Company’s operational guidelines

The company’s continuous expansion of its investments within Thailand as well as overseas in order to increase competitiveness and risk distribution. To manage investments for maximum efficiency, prior to any investments or acquisitions, the company has an expert management team with experienced in mergers and acquisitions, as well as investment advisors of each project, to consider and analyze each individual investment and risk management in a circumspect manner.

Company guidelines regarding post-merger and acquisition integration have been formulated to optimize both the strategy and policy in terms of marketing; production; management; finance and operations to best maximize benefits for the Company.

The Global Leadership Team (GLT), which consists of top management of the companies on each continent, has regular meetings to jointly make decisions about important matters and to enhance the understanding about the cultures of each country.

Additionally, in terms of governance and administration, the parent company has formulated policies and key management systems, especially in finance and accounting, so that the guidelines for business management among its subsidiaries are in line with each other, e.g. accounting standards, the financial policy, the good corporate governance policy, and the risk operation policy.

2. OPERATION RISKS
Fluctuations in tuna prices

Tuna is main raw material of the company’s product. Prices of tuna, as a raw material, mostly vary based upon the supply and demand of the global market, seasons, as well as environmental and natural factors. Last year saw the volatility of skip jack tuna, as a raw material; their prices declined from 1,200-1,800 USD per ton in 2014 to 1,000-1,500 USD per ton. Thus, fluctuations in tuna prices should have a direct impact on the Company’s production costs and profit, as product pricing should be based upon the market prices at the time.

Company’s operational guidelines

The company has a central unit equipped with expertise and extensive experience in the tuna business which is responsible for purchasing tuna raw materials from various sources around the world. Specifically, the team is responsible for analyzing; gathering factors that influence tuna prices and utilizing the obtained data to forecast price trends and develop a purchasing strategy. The company has focused on appropriate inventory management under different price situations. The position of the company as one of the world’s largest tuna purchasers has provided it with bargaining power over tuna prices; however, it has no policy to speculate on fluctuating tuna prices.

Fluctuations in shrimp prices

Shrimp is the second main raw material next to tuna. Last year’s domestic shrimp prices saw fluctuations and a decrease from year 2014. The price of litopenaeus vanamei, or white leg shrimps (60 shrimps/kg size), dropped from 180-270 baht per kg in 2014 to 150-200 baht per kg in 2015. This resulted from an increased demand for shrimp due to the recovery from the early mortality syndrome (EMS) outbreak for shrimps and increased shrimp production by Thailand’s rivals in many countries.

Company’s operational guidelines

Despite an increase in the shrimp supply in Thailand as a result of recovery from the EMS situation, the amount of shrimp products has been significantly lower than before the EMS outbreak. Thus, the company has prepared a shrimp price guarantee scheme for farmers in order to boost their confidence in shrimp raising and help stabilize local shrimp prices. With this scheme, the company has been able to increase the volume of shrimps for export, which has increased its revenue from sales and compensated for lower unit prices.

3. COMPLIANCE RISK
Laws and Regulations

As one of the world’s largest seafood producers with operations domestically and overseas, legal compliance is one of the challenges that the company have to encounter. Due to differences in regulations from country to country, the company works consistently to ensure strict compliance with regional regulations.

Company’s operational guidelines

Compliance with laws and regulations is an important matter that the company cannot compromise in order to achieve correct practices. The company has legal units both in the Thailand and overseas to ensure all of its operations are in compliance with regulations in respective countries where it operates and the countries of trade partners where the company exports to. The legal units take charge of monitoring changes in regulations and laws, analyzing impacts and factors related to the company, and training management and employees in important matters.

In 2015, the company set up the Global Legal and Compliance Function which is responsible for the Company’s global legal administration. In addition, the company established a corporate culture which recognizes the importance of legal operations and the seriousness of illegal actions, in order to strengthen good governance principles that the company adheres to. Management and employees are trained on these issues.

4. FINANCIAL RISKS
Exchange rate risks

The fluctuating global economy in 2015 resulted in large fluctuations in the foreign currency exchange rates. This directly affected the Company Group’s performance in terms of revenues and profits, because more than 90 percent of the revenue of local companies was derived from exports, such as to the U.S.A., the EU, and Japan. The companies in Europe and the U.S.A. reported their performance in the euro and US dollar, respectively, so the Company’s consolidated financial statement denominated in the baht was affected by fluctuations in foreign currency exchange rates.

Company’s operational guidelines

The company has closely monitored the fluctuations in foreign exchange rates and has the policy for foreign currency exchange rate management characterized by natural hedge. The company used the revenue from product sales, which were mostly denominated in the US dollar, to pay for the main raw material, which is tuna, and other expenses, under the same currency. In addition, it has managed risks by utilizing the forward contract in order to minimize impact from foreign currency exchange rates fluctuations, especially the US dollar, and to optimize its financial management.

In 2015, the company established the Global Treasury Center in Thailand – the center for managing liquidity and risks from exchange rates, as well as financing to reduce financial risks scattered all around the world and to reduce operating costs for the company Group as a whole.

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