Risk Management MBA-Finance 5th Semester

SUBMITTED TO:

Mr. Asif Masood

SUBMITTED BY:

Danish Maqsood Ahmed (14137)Muhammad Arslan (14140)Adnan Ghafoor (14117)Nabeela Razzaq (14105)Raza Usman Butt (14147)

Assignment: Final AssignmentCLASS: MBA 5th (Professional)SESSION: 2013-2016DATE: 19-02-2015

Risk Management

Sitara Chemical Industries Limited

ACKNOWLEDGMENT

Date: 19-2-2015

To,

The Director

Sitara Chemical Industries Limited,

SUBJECT: RISK ANALYSIS FOR ANNUAL REPORT 2014

Dear Sir,

With this letter I would hereby like to inform you that as according to your instructions, we analyze the annual report of the sitara chemical industries for evaluation of risk level. According to your guidelines, I write a detail report after reading all important aspects of the annual reports. The remarks & recommendations are also given in the detailed report. I hope this report will find you good in health.

Regards,

Manager Accounts

EXECUTIVE SUMMARY

We conduct study of Sitara Chemical Industries Limited Annual report 2014 for analysis of risk. Sitara Chemical Industries Limited have a strong financial position and continuing growth and diversification for bottom line results with risks well contained. Its profits are increasing and appropriate accounting policies have been consistently applied, in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment and company successfully maintain fund for future strategies. Company have a good capita income in business, their people are strength and key drivers behind all our achievements of Sitara Chemical and company successfully meeting its profit targets and also meeting its liabilities.

Comprises of Five Executive and two non-executive directors. The non-executive directors are independent to management. Chief Executive. Senior Management took interest in providing fraud awareness and conducting different trainings to avoided risks.

We believe in stimulating and challenging team oriented work environment that encourages, develops and rewards excellence for providing accurate investments strategies and diligently serve communities, maintaining high standards of moral and ethical values. Associates are all entities over which the Company has significant influence, but not control, generally accompanying a shareholding of 20% or more of the voting rights.

The physical assets of company are increasing which is beneficial for Company. Company is committed to utilize the relevant developments in the IT sector to achieve its strategic business goals. It is equipped with necessary hardware, software, applications, and personnel to cope with all the business challenges and the developments taking place in the market and they are using most secure Oracle systems to protect data. Company is maintain its reserves and its major focus on future strategies and in the business continuity plans are sufficiently manage by the organization to avoid the major loss.

Company has many products but caustic soda is its star product. Company has little risk according to this point as company is taking interest in innovation. There is some risk as company’s sales increase as compare to previous year, but gross profit ratio has declined as it was 30% last year & it is 24% current year. The main product of company is caustic soda and its sales has declined as compare to last year. Due to managerial issues & declined in gross profit, company can face the some risk in future.

TITLE: SITARA CHEMICAL INDUSTRIES LIMITED

INTRODUCTION

Operation of Chlor-alkali plant, wherein Caustic Soda and Chlorine Gas are produced out of common salt through electrolysis process. Caustic Soda is a basic chemical having a broad spectrum application in various industrial processes. A number of bi-products being manufactured are chlorine based.

Spinning units, wherein all types of yarn e.g. combed, carded, knitting and Slub yarn are being spun to catering domestic/export market.

Agri application Nutrients and Soil yarn conditioner.

In addition to foreign technology based products various products have been developed by company R & D department. Such products are covered in Specialty Chemical and Agriculture products.

Purpose

The purpose of this risk assessment is to evaluate the adequacy of the Sitara Chemical Industries Limited. This risk assessment provides a structured qualitative assessment of the operational environment. It addresses sensitivity, threats, vulnerabilities, risks and safeguards. The assessment recommends cost-effective safeguards to mitigate threats and associated exploitable vulnerabilities.

Scope

The scope of this risk assessment assessed the system’s use of resources and controls to eliminate and/or manage vulnerabilities exploitable by threats internal and external to the Centers for Disease Control and Prevention.

This Risk Assessment Report evaluates the confidentiality (protection from unauthorized disclosure of system and data information), integrity (protection from improper modification of information), and availability (loss of system access) of the system.

Mission

Our mission is to evaluate the Financial Structure of Sitara Chemical Industries Limited using “Annual Report 2014”. Continuing growth and diversification for bottom line results with risks well contained.

RISK MANAGEMENT FOR CHEMICAL INDUSTRIES

Chemicals have become a part of our life for sustaining many of our day-to-day activities, preventing and controlling diseases, and increasing agricultural productivity etc. An estimation of one thousand new chemicals enters the market every year, and about 100000 chemical substances are used on a global scale. These chemicals are mostly found as mixtures in commercial products. Over one million such products or trade names are available.

The chemical industrial sector is highly heterogeneous encompassing many sectors like organic, inorganic chemicals, dyestuffs, paints, pesticides, specialty chemicals, etc. Some of the prominent individual chemical industries are caustic soda, soda ash, carbon black, phenol, acetic acid, methanol and azo dyes. Chemical manufacturing sector in Pakistan is well established and has recorded a steady growth in the overall Pakistan industrial scenario. The Chemical and allied industries have been amongst the faster growing segments of the Pakistan industry. The Pakistan chemical industrial sector had a turnover of around Rs.1765 billion in 2013-2014. The chemical exports also accounts for more than 19.70% of the total Pakistan exports during 2013-2014.

The risks associated with the chemical industry are commensurate with their rapid growth and development. Apart from their utility, chemicals have their own inherent properties and hazards. Some of them can be flammable, explosive, toxic or corrosive etc. The whole lifecycle of a chemical should be considered when assessing its dangers and benefits. Though many of chemical accidents have a limited effect, occasionally there are disasters like the one in Bhopal, Pakistan, in 1984, where lakhs of people were affected and LPG explosion in Vizag refinery where huge property damage in addition to 60 deaths was experienced. Therefore chemicals have the potential to affect the nearby environment also.

Design and Pre-modification review : Improper layout like location of plant in down wind side of tank farm , fire station near process area , process area very close to public road and wrong material of selection had caused severe damages to the work and outside environment

Chemical Risk Assessment: Not assessed for new chemicals from the point of view of compatibility, storage, fire protection, toxicity, hazard index rating, fire and explosion hazards

Process Safety Management: HAZOP, FTA, F&E Index calculation, reliability assessment of process equipment, incorporating safety trips and interlocks, scrubbing system, etc. not done before effecting major process changes, lack of Management of Change procedure (MoC), etc.

Electrical Safety: Hazardous area classification , protection against static electricity , improper maintenance of specialized equipment like flameproof etc were ignored.

Safety Audits: Periodical assessment of safety procedures and practices, performance of safety systems and gadgets along with follow up measures were not carried out.

Emergency Planning: Lack of comprehensive risk analysis indicating the impact of consequences and specific written down and practiced emergency procedures along with suitable facilities had increased the severity of the emergency situations.

Training: Safety induction and periodical refresher training for the regular employees and contract workmen were not carried out.

Risk Management & Insurance Planning: Thorough identification and analysis of all risks and insurance planning were not done so that interruption risks and public liability risks could also be managed effectively.

RISK ASSESSMENT APPROACH

This risk assessment methodology and approach was conducted using the guideline of Risk Index which consists of twenty sub-components under for main heads Financial Components, Infrastructure components, Reputational Components and Market Components

Operational Components: This analysis based on human risk; it is the risk of business operations failing due to human error. Industries with lower human interaction are likely to have lower operational risk.

Financial Components: This analysis based on availability of funds, Funds Investment Strategies, Fraud evaluation and meeting liabilities.

Infrastructure Components: This analysis based on infrastructure of company and evaluates protection of intellectual property.

Reputational Component: This analysis is based on Reputation of company among general public and its stakeholders.

Marketplace Component: This analysis is based on stability of company regarding innovation, advance technology and market fluctuations.

Detailed Performa of Risk Index Analysis is attached at the end of report. We use financial report of Sitara Chemical Industries Limited Annual Report 2014 for this Risk Analysis.

ANALYSIS

To determine overall risk levels, we conduct deep study of Sitara Chemical Industries Limited Annual Report 2014, integrity, and confidentiality of the system is in relation to it being able to perform its function, and focus on the types of damage that could be caused by the exercise of each threat-vulnerability pair.

We give rating 0 to 5, “0” for No Risk and “5” for Extreme Risk.

Operational Components:

Sitara Chemical considers the full range of material operational risks and lists examples ranging from fraud and data entry errors to hardware failures and floods.

The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

Further complicating sitara chemical risk management efforts, organization may differ widely in its exposure to operational risk, depending, for instance, upon their investment strategies, the markets in which they operate and the instruments they employ. As with investment risk, firms also have varying tolerance levels for operational risk. Consequently, there is no generic checklist for identifying operational risk, nor is there a single, universally applicable set of mitigation measures in the organization. comapny believe virtually every investment management firm can benefit from taking a fresh look at common areas of risk, and considering the variety of relatively straightforward risk management measures that can readily be deployed by large and small organizations alike.

Financial Components:

The Financial position of company is strong and continuing growth and diversification for bottom line results with risks well contained. Its profits are increasing and appropriate accounting policies have been consistently applied, in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment and company successfully maintain fund for future strategies.

We believe in stimulating and challenging team oriented work environment that encourages, develops and rewards excellence for providing accurate investments strategies and diligently serve communities, maintaining high standards of moral and ethical values. Associates are all entities over which the Company has significant influence, but not control, generally accompanying a shareholding of 20% or more of the voting rights.

Its research and development activities at its exclusive R&D department that constitutes highly professional and fully dedicated staff which evaluate performance and create control over environment to prevent fraud.Audit Committee was established to assist Board in discharging its responsibilities for Corporate Governance, Financial Reporting and Corporate Control.

Company have a good capita income in business, their people are strength and key drivers behind all our achievements of Sitara Chemical and company successfully meeting its profit targets and also meeting its liabilities.

Infrastructure Components:

The Board comprises of Five Executive and two non-executive directors. The non-executive directors are independent to management. The Board has delegated day-to-day operations of the Company to the Chief Executive. Senior Management took interest in providing fraud awareness and conducting different trainings to avoided risks.

There is low risk in employee turnover because they are using effective and energetic people who have sufficient skills to overcome the problems in industry and Sitara Group of Industries has setup Sitara Institute of Management & Technology (SIMT) for quality training to the desirous youth under real working environment and with support of its large back-up of Group’s entities.

The physical assets of company are increasing which is beneficial for Company. Company is committed to utilize the relevant developments in the IT sector to achieve its strategic business goals. It is equipped with necessary hardware, software, applications, and personnel to cope with all the business challenges and the developments taking place in the market and they are using most secure Oracle systems to protect data. Company is maintain its reserves and its major focus on future strategies and in the business continuity plans are sufficiently manage by the organization to avoid the major loss.

They are using Oracle ERP technology through this they integrated with one another. This integration allows various departments and units of an enterprise to share and maintain the same information.

Reputational Component:

Company repaying its debts due to improved cash fellows company’ s long term loans have declined. Due to this public perception is high about company. Sitara Chemical Industries Limited is proactive for health and welfare of local community. The company manages and awareness campaigns frequently. Trainings, awareness session and workshop are held continuously and average 500 people are trained per year. Company maintained high standards of moral and ethical values. So that company has no risk. They has been no material departure from the best practices of the Corporate Governance. BOD is mindful of its responsibilities and duties under legal and corporate framework.

Company has high risk regarding customer services because many textiles company prefer EPCL’s (Engro Polymer & Chemical Limited) caustic soda over SITC’s (Sitara Chemical Industry Limited) because EPCL’s higher quality product than SITC’s. If company does not improve it quality product so may be company lost its reputation in the eye of people or public/customer.

Marketplace Component:

There is some risk as company’s sales increase as compare to previous year, but gross profit ratio has declined as it was 30% last year & it is 24% current year. The main product of company is caustic soda and its sales has declined as compare to last year. Due to managerial issues & declined in gross profit, company can face the some risk in future.

Currently technology is getting better every day & new competitors are entering in the market day by day. As last year company was earned more profit in 2012 and also increase its sales. But this year company increases her sales but gross profit tends to down. Company should have to work on its manufacturing techniques so that it can compete with her competitors.

Due to economy instability & increasing inflation, there will be medium risk for company. As company’s gross profit has downed due to interest rates & high value of expenses & inflation. But still company is successful in increasing per value of share in market.

Company has many products but caustic soda is its star product. Company has little risk according to this point as company is taking interest in innovation.

There is little risk in supply chain management because due to some issues, company’s expenses has increased by previous years. Sales increased but profit has down. In future it can be more dangerous for company.

RECOMMENDATIONS

In above analysis we some areas where company need to focus and bring some changes to reduce the level of risk.

Company need to be focus on customer feedback and work on its quality because competitors are already in market and they are focusing on customer services.

The gross profit of company is declined due to decrease in sale of Caustic soda which may show serious impact on financial position of company in future.

Company need to upgrade their technology because competitors in market are improving.

Company need to be strong focus on sales team because sales are not increasing as compared to previous years.

Company have to provide employee benefits and also get their feedback regarding their work which can help to minimize risk of fraud.

Company motivate its employee which perform a role in making employee loyal which can decrease employee turnover.

REFERENCE

1. http://www.sitara.com.pk/ 2. http://opim.wharton.upenn.edu/risk/library/06-11.pdf 3. http://www.sciencedirect.com/science/article/pii/S0263237399000663