PROJECT: INDUS MOTORS LTD

RISK MANAGEMENT DEPARTMENT

SUBMITTED BY:

Qasim Ali 10022120-088

Yasir Azam 10022120-061

Usman Arshad 10022120-022

Mandeel Gulzar 10022120-025

Usman Mir 10022120-075

SUBMITTED TO:

Miss. Saima Naz

BBA SEMESTER 8th(AT)

UNIVERSITY OF GUJRAT

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INDUS MOTORS LTD

RISK MANAGEMENT DEPARTMENT

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Table of ContentsHISTORY:...........................................................................................................................4

VISION AND MISSION STATEMENT:...........................................................................5

MANAGEMENT POLICY:................................................................................................5

RISK MANAGEMENT POLICY:......................................................................................6

POLICY OBJECTIVES:.................................................................................................6

THE GOALS OF RISK MANAGEMENT STRATEGY ARE:.....................................7

THESE OBJECTIVES WILL BE ACHIEVED BY:......................................................7

RISK MANAGEMENT AT INDUS MOTORS:................................................................8

RISK MANAGEMENT PROCESS:...................................................................................9

RISKS FACED BY INDUS MOTORS:...........................................................................10

PRICE/MARKET RISK:...............................................................................................10

Risk policy:................................................................................................................10

FOREIGN EXCHANGE RATE RISK:........................................................................10

Risk policy:................................................................................................................11

INTEREST RATE RISK:..............................................................................................11

Risk policy:................................................................................................................12

CREDIT/ FINANCIAL RISK:......................................................................................12

Risk policy:................................................................................................................13

LIQUIDITY RISK:........................................................................................................13

Risk policy:................................................................................................................14

COMMODITY PRICE RISK:.......................................................................................14

Risk policy:................................................................................................................14

OPERATIONAL RISK:................................................................................................14

Risk policy:................................................................................................................14

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POLITICAL RISKS:.....................................................................................................14

CAPITAL RESOURCES..............................................................................................15

Risk policy:................................................................................................................15

REFERENCE PAGE:....................................................................................................17

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HISTORY:

Indus Motor Company (IMC) is a joint venture between the House of Habib , Toyota

Motor Corporation Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC) for

assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan

since July 01, 1990. IMC is engaged in sole distributorship of Toyota and Daihatsu Motor

Company Ltd. Vehicles in Pakistan through its dealership network.

The company was incorporated in Pakistan as a public limited company in December

1989 and started commercial production in May 1993. The shares of company are quoted

on the stock exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho

Corporation have 25 % stake in the company equity. The majority shareholder is the

House of Habib.

IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in

an area measuring over 105 acres.

Indus Motor Company's plant is the only manufacturing site in the world where both

Toyota and Daihatsu brands are being manufactured.

Heavy investment was made to build its production facilities based on state of art

technologies. To ensure highest level of productivity world-renowned Toyota Production

Systems are implemented.

IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota

Hilux Single Cabin 4x2 and 4 versions of Daihatsu Cuore. We also have a wide range of

imported vehicles.

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VISION AND MISSION STATEMENT:

Vision is to be the most respected and successful enterprise, delighting customers with a

wide range of products and solutions in the automobile industry with the best people and

the best technology".

The most respected.

The most successful.

Delighting customers.

Wide range of products.

The best people.

The best technology.

Mission of Toyota is to provide safe & sound journey. Toyota is developing various

new technologies from the perspective of energy saving and diversifying energy sources.

Environment has been first and most important issue in priorities of Toyota and working

toward creating a prosperous society and clean world.

MANAGEMENT POLICY:

Management at Indus Motor Company are committed to fulfil the requirements of

Integrated Management System and to try to continuously improve upon it in order to:

Manufacture high Quality Products.

Generate Customer Satisfaction.

Provide Service to the Society.

Maintain Market Leadership.

Identify and avoid/mitigate those environmental aspects which have negative

environmental impacts. Comply with all applicable legal, regulatory and other

requirements related to Environment, Health and Safety, Assist society by making the

environment more friendly. Design and maintain facilities, establish systems, provide

training and conduct operations in a manner that safeguard people and property.

Identify, evaluate & mitigate health risks related to our operations that potentially affect

our employees, contractors and the public.

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RISK MANAGEMENT POLICY:

Risk management is all about managing our threats and opportunities. By managing our

threats effectively we will be in a stronger position to deliver our objectives. By

managing our opportunities well we will be in a better position to provide improved

services and better value for money.

In this strategy risk is defined as something happening that may have an impact on the

achievement of our objectives. When our management of risk goes well it often remains

unnoticed. When it fails, however, the consequences can be significant and high profile.

Effective risk management is needed to prevent such failures.

A risk management strategy is an essential element of strategic planning. We have a

corporate plan covering the whole of our activities and the risk management strategy

should be seen as sitting under this broader umbrella.

This risk management strategy describes the processes that we will put in place and link

together to identify, assess, address and review and report on our risks. The strategy

provides the framework for the management of risk across the whole Council.

Purpose of policy:

The purpose of this policy is to articulate risk management philosophy and the processes

and practices that are in place to identify, communicate and manage material risks across

the organization. The policy also ensures that responsibilities have been appropriately

delegated for risk management.

POLICY OBJECTIVES:The application of this policy and related procedures will provide the basis for a strong

risk management framework which comprises:

More confident decision making and planning.

Better identification of opportunities and threats.

Better management of opportunities and threats.

More effective allocation and use of resources.

Improved stakeholder confidence and trust.

Risk is a factor of ever-day life and can never be eliminated completely. All employees

must understand the nature of risk and accept responsibility for risks associated with their

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area of authority. The necessary support, assistance and commitment of senior

management will be provided.

THE GOALS OF RISK MANAGEMENT STRATEGY ARE: Integrate Risk Management into the culture of the organization.

Manage risk in accordance with best practice.

Anticipate and respond quickly to social, environmental and legislative change.

Prevent injury and damage and reduce the cost of risk.

Raise awareness of the need for risk management.

THESE OBJECTIVES WILL BE ACHIEVED BY: Establishing a Risk Management organizational structure to act in an advisory and

guiding capacity and which is accessible to all employees.

Include Risk Management as one of the implications to be considered in every

committee report.

Adopt processes, which demonstrate that Risk Management principles are being

applied across the whole organization.

Provide training in risk awareness and Corporate Governance.

Maintain documented procedures for the control of risk and provision of suitable

information, training and supervision.

Maintain an appropriate system for recording incidents and carrying out post

event checks to ascertain causes and identify preventive measures against re-

occurrence.

Devise and maintain contingency plans in key risk areas to secure business

continuity where there is a potential for an event having a major impact upon the

council's ability to function.

Maintain effective communication and involvement of all staff and members.

Monitor arrangements on an ongoing basis.

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RISK MANAGEMENT AT INDUS MOTORS:

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RISK MANAGEMENT PROCESS:

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RISKS FACED BY INDUS MOTORS:

The company's activities expose it to a variety of risks: price/market risk, credit risk,

liquidity risk and fair value interest rate risk. The company's overall risk management

program focuses on the volatility of markets and seeks to minimize the effects on the

company's financial performance. The Board of Directors determines the level of risk

acceptable to the company by setting limits within which senior managers monitor the

company's operations.

PRICE/MARKET RISK:Market risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in market prices. This risk arises from adverse

movements in the price of securities in which the company trades. The company's

objective is to be aware, control and minimize this risk. The Company's principal

business involves acting as a broker and dealer in commodity and it holds positions

primarily on a back to back basis with clients and brokers. Open trading positions held by

the Company are small and largely result from client facilitation activities. Where open

positions exist the Company is exposed to adverse price movement in the price of

commodities in which it trades and holds positions.

Risk policy:The company has a policy to create trading limits have been set that take into account

each commodity's volatility. These limits are monitored on a daily basis against both

marked to market movement and position structure.

FOREIGN EXCHANGE RATE RISK:This risk arises from adverse exchange rate movement in the currencies to which the

company is exposed. Foreign currency risk arises mainly where receivables and payables

exist due to transactions entered into in foreign currencies. The Company manages its

exposure against foreign currency risk by entering into foreign exchange contracts where

considered necessary.

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Foreign currency risk arises mainly where receivables and payables exist due to

transactions entered into in foreign currencies. The Company primarily has foreign

currency exposures in US Dollars (USD) and Japanese Yen (JPY). The net foreign

currency exposure at June 30, 2013 is USD 12.533 million (2012: USD 0.199 million)

and JPY 613.523 million (2012: JPY 1,368.964 million).

Toyota has foreign currency exposures related to buying, selling and financing in

currencies other than the local currencies in which it operates. Toyota is exposed to

foreign currency risk related to future earnings that are exposed due to operating cash

flows and various financial instruments that are denominated in foreign currencies.

Toyota’s most significant foreign currency exposures relate to the U.S. dollar.

Toyota uses a value-at-risk analysis ("VAR") to evaluate its exposure to changes in

foreign exchange currency rates. The value-at-risk of the combined foreign exchange

position represents a potential loss in pre-tax earnings. The value-at-risk was estimated

by using a variance/ covariance model and 10-dayholding period. Toyota changed the

model used for calculation of value-at-risk from "variance/covariance" method to "Monte

Carlo Simulation" method for more effectively to the risk management purposes. By

using this value-at-risk analysis (VAR), the company able to manage their global risk

effectively. For instance, the VAR of the combined foreign exchange position showed

loss in pre-tax earnings that was estimated to be RS 114.1 billion as of March 31, 2009

and RS 148.9 billion as of March 31, 2010.

Years 2009 2010

loss Pre Tax earning 114.1 billion 148.9 billion

Risk policy:Management has set a policy that where the company contracts in a currency other than

dollar, that contract is immediately covered with respect to the dollar. The company is

also required to sell its dollar income stream for sterling on a monthly basis. The

company has receivables and payables in non-sterling currencies and the resulting

currency exposure within net assets are exposed to currency translation risk.

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INTEREST RATE RISK:Interest rate risk is the risk that the value of a financial instrument will fluctuate due to

changes in the market interest rates. Sensitivity to interest rate risk arises from

mismatches of financial assets and financial liabilities that mature or reprice in a given

period.

Toyota is subject to market risk from exposures to changes in interest rates based on its

financing, investing and cash management activities. Toyota enters into various financial

instrument transactions to maintain the desired level of exposure to the risk of interest

rate fluctuations and to minimize interest expense. Interest rates would be approximately

RS 110.6 billion as of March 31, 2008 and RS 55.8 billion as of March 31, 2009.

Year 2008 2009

Interest Rate 110.6 billion 55.8 billion

Risk policy:Toyota Company manages these mismatches through risk management strategies where

significant changes in gap position can be adjusted. Toyota Company can reduce its risk

by having long term loan rather than short term on which interest rate changes more

frequently.

CREDIT/ FINANCIAL RISK:Credit risk represents the risk of a loss if the counter party fails to discharge its obligation

and cause the other party to incur a financial loss. Toyota used various financial

instruments, in the normal course of business. These instruments were in general

executed only with creditworthy financial institutions. Virtually all foreign currency

contracts were denominated in U.S. dollars and other currencies of major industrialized

countries.

This risk arises from defaulting on a contractual obligation involving cash and cash

equivalents, deposits with banks and financial institutions, and from financial instruments

transactions. In particular, the Toyota Company operates in a market that is largely driven

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by providing credit to counterparties and has an objective of being aware of, and

controlling, counterparty exposure against limits set down.

Risk policy:The company has credit policies and procedures in place under its Adequate Credit

Management Policy (ACMP) and this helps ensure it deals only with counterparties of

suitable credit standing. After considering counterparty's financial results and other

relevant data, all applications for credit lines are submitted to the parent company's credit

committee for formal approval, or rejection.  Such lines granted are advised to the

counterparty and are reviewed at least on an annual basis. All counterparty positions are

monitored at least on a daily basis against lines granted.  The company calls margin for

cover should net exposures covered by netting agreements, exceed the lines granted. It

considers its dealings with the present range commodities as one class of financial asset.

The company has determined that concentration risk can arise through exposure to any

one counterparty or counterparty group, from the industry segment those counterparties

are involved in, and from geographic region. Management, however, have in place master

netting agreements that reduce the credit exposure significantly and through the netting of

assets and liabilities in the event of a default.

The Company attempts to control credit risk by monitoring credit exposures, limiting

transactions with specific counterparties and continually assessing the creditworthiness of

counterparties.

For trade receivables, internal risk assessment process determines the credit quality of the

customer, taking into account its financial position, past experience and other factors.

Individual risk limits are set based on internal or external ratings in accordance with

limits set by the management. The utilization of credit limits is regularly monitored.

Accordingly, the management believes that the credit risk is minimal and in the opinion

of the management, the Company is not exposed to major concentration of credit risk.

LIQUIDITY RISK:This is the risk that the company is unable to meet funding obligations as they fall due.

The company's objective is to ensure adequate financial arrangements are in place to

prevent this risk occurring.  

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Risk policy:Liquidity risk management requires maintaining sufficient cash, cash equivalent, deposits

and adequate bank facilities readily available to fund the company's day to day business.

Funding levels are reviewed at least annually by the company and account taken of both

business plans and market levels to ensure an appropriate level to support the business.

To guard against the risk, the Company has diversified funding sources and assets are

managed with liquidity in mind, maintaining a healthy balance of cash and cash

equivalents. The maturity profile is monitored to ensure adequate liquidity is maintained.

The management forecasts the liquidity of the Company on the basis of expected cash

flow considering the level of liquid assets necessary to meet such risk.

COMMODITY PRICE RISK:Commodity price risk is the possibility of higher or lower costs due to changes in the

prices of commodities, such as non-ferrous alloys e.g. Aluminum, precious metals e.g.

Palladium, platinum and rhodium and ferrous alloys, which Toyota uses in the production

of motor vehicles.

Risk policy:Toyota controls its commodity price risk by holding minimum stock levels. Because

prices of non- ferrous alloys change which credit risk for Toyota Company.

OPERATIONAL RISK:This risk is the potential impact of both financial and reputational loss that could arise

from failings in operational processes, systems, or internal controls.

Risk policy:Toyota Company constantly review the operation, process, systems or internal control.

This disciplines and awareness reduce the company risk.

POLITICAL RISKS:The automotive industry is subject to various governmental regulations. The worldwide

automotive industry is subject to various laws and governmental regulations including

those related to vehicle safety and environmental matters such as emission levels, fuel

economy, noise and pollution. In particular, automotive manufacturers such as Toyota are

required to implement safety measures such as recalls for vehicles that do not or may not

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comply with the safety standards of laws and governmental regulations. In addition,

Toyota may, in order to reassure its customers of the safety of Toyota’s vehicles, decide

to voluntarily implement recalls or other safety measures even if the vehicle complies

with the safety standards of relevant laws and governmental regulations. Many

governments also impose tariffs and other trade barriers, taxes and levies, or enact price

or exchange controls. Toyota has incurred, and expects to incur in the future, significant

costs in complying with these regulations. If Toyota launches products that result in

safety measures such as recalls, Toyota may incur various costs including significant

costs for free repairs. Furthermore, new legislation or changes in existing legislation may

also subject Toyota to additional expenses in the future. If Toyota incurs significant costs

related to implementing safety measures or meeting laws and governmental regulations,

Toyota’s financial condition and results of operations may be adversely affected.

CAPITAL RESOURCESShare capital constitutes the managed capital of the company.  Called up share capital

and the profit and loss reserve on the balance sheet qualify for inclusion as financial

resources for regulatory purposes. In addition, the company can call on subordinated

loans from third parties to supplement regulatory capital if required and during the year

drew down funds under facilities provided for this purpose.  The Company is authorized

and regulated by the Financial Services Authority ("FSA"), and is subject to the FSA's

minimum capital standards and requirements as applicable to UK Non – ISD Firms.

These require, inter alias, that a minimum ratio of Capital available to risk weighted

Capital Requirements of 100% is maintained at all times. In addition there are

concentration and liquidity mismatch calculations and reporting requirements and is

measured on a daily basis.

Risk policy:The Company's sets of objectives, policies and processes relating to the management of

capital, and for ensuring that the FSA's minimum capital standards are met. FSA

requirements are fully incorporated into capital management objectives, policies and

processes.

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Conclusion:Risk management is the identification, assessment, and prioritization of risks followed by

coordinated and economical application of resources to minimize, monitor, and control

the probability or impact of unfortunate events to maximize the realization of

opportunities. Risk Management is the culture, processes and structures that are directed

towards the effective management of potential opportunities and adverse effects within

the environment. This Risk policy plays a vital role in our organization stability and

growth this policy helps the management a lot in accomplishment of the defined goals.

Thus, with the help of this risk policy we are assuming that all the risks of our

organizations will be managed to the extent. Incase if any risk re appear management will

conduct a Re-assessment of that risk and will try to mitigate that risk.

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REFERENCE PAGE:http://www.toyota-indus.com/

http://www.toyota.com/

http://www.thefinancialdaily.com/NewsDetail/124437.aspx

http://www.wikinvest.com/stock/Toyota_Motor_(TM)/Interest_Rate_Risk

http://www.wikinvest.com/stock/Toyota_Motor_(TM)/

Quantitative_Qualitative_Disclosures_Market_Risk

http://www.nbcnews.com/business/business-news/toyota-hold-worlds-biggest-car-recall-

16-years-f1C6374378

http://www.ibscdc.org/Case_Studies/Enterprise%20Risk%20Management/Enterprise

%20Risk%20Management/ERMT-006.htm

http://www.studymode.com/essays/Financial-Risk-Management-At-Toyota-

1126204.html