7. RISK FACTORS
(i) Change in control
Following the completion of the Proposed Restructuring Scheme, the PIPO Vendors collectively, are expected to emerge as the largest controlling shareholders of Hua-An. The PIPO Vendors as the controlling shareholders may introduce new Directors who will effectively determine the future business direction of the Hua-An Group. In this regard, the PIPO Vendors will be able to influence the outcome of matters requiring the vote of Hua-An’s shareholders, unless they are required to abstain from voting by law and/or the relevant authorities. Nonetheless, Hua-An will invite independent directors to the Board of Hua-An as a step towards good corporate governance.
(ii) Political, economic and regulatory risks
Like all other business entities, changes in political, economic and regulatory conditions in the PRC, could materially and adversely affect the financial and business prospects of the Hua-An Group. Amongst the political, economic and regulatory uncertainties are the changes in political leadership, expropriation, nationalisation, re-negotiation or nullification of existing sales orders and contracts, interest rates, method of taxation and currency exchange rates. Despite the uncertainties stated above, the Board of Hua-An will continue to focus on its core business while evaluating new business opportunities that arise which could potentially enhance shareholder’s value.
While the Hua-An Group will seek to limit the impact of such risk to its business, there is no assurance that any change in the above factors will not have a material adverse effect on the business and operations of the Hua-An Group.
(iii) Business risks
The Hua-An Group’s business activities are subjected to certain risks inherent in the coke and steel industries. These may include changes in general economic conditions and political conditions, inflation, taxation, interest rates and exchange rates of foreign currencies and changes in business conditions such as, but not limited to, deterioration in prevailing market conditions, labour and material supply shortages, increase in costs of labour.
Notwithstanding the above, the Hua-An Group seeks to minimise its business risks through, inter-alia careful selection of contracts and contractual terms and adopting prudent credit policy. The Hua-An Group’s cashflow management also includes regular monitoring of debtors’ position and stocks level. In addition, the Hua-An Group also maintains good long-term relationship with its customers and suppliers.
(iv) Reliance on the steel industry in the PRC
The largest market for the Hua-An Group’s main product, metallurgical coke is the steel industry in the PRC. As metallurgical coke is mostly used in the blast furnace of the steel industry, the industry cycle of the steel industry indirectly become the proxy to the performance of metallurgical coke market. Growth in the PRC’s economy bodes well with the health of the metallurgical coke market because of potential strong steel demand as steel exhibits wide applications usage across various key industries that drive the PRC’s economic engine. However, any decline in the demand for steel and/or steel related products may affect the demand of the Hua-An Group’s products.
With the Hua-An Group’s proven track record in coke production, experienced management team, its competitive edge and the positive outlook of the coke and steel industries, the Hua-An Group is well positioned and is confident of capitalising on the growth of the coke and steel industries.
The Hua-An Group competes in a competitive coking industry and its competitors include independent coking companies, coking plants set-up by steel manufacturers to complement their own operations and coking plants set-up by coal mining companies as a downstream value-added activity. The ability to compete depends upon many factors both internal and external, including stock availability, efficiency of distribution channels, pricing and customer service and support. The Hua-An Group’s strategy is to constantly meet and improve on fulfilling customers’ needs and requirements. Nevertheless, there can be no assurances that any changes in the competitive environment will not have a material effect on the Hua-An Group’s businesses.
(vi) Dependence on key personnel
The success of the Hua-An Group will depend to a significant extent upon the abilities and continued efforts of its current management team. The loss of any member of its management team may have an impact on the operations. The future success of the Hua-An Group will also depend upon its ability to attract and retain skilled personnel.
In order to mitigate this, efforts are continuously made to attract skilled and experienced staff through attractive remuneration and incentives and good human resource management for continual future performance. The Hua-An Group is grooming existing personnel to support senior management and/or to shoulder more responsibilities in preparation for future opportunities and in ensuring a smooth transition should there be any change in the organization structure of the Hua-An Group.