Risk Management

Risk management process

Ability enables all departments to clearly understand their relevant and respective risks through the risk management procedures and evaluates risk topics to be faced potentially so as to reduce or avoid potential impacts and effects. Ability selects its main risk aspects, including operating risks, economic risks, and environmental risks, according to the materiality principle and ISO31000 risk management standards and establishes the “Procedures for Risk Management” to specify the authority and responsibility, method, and procedures for risk management in order to effectively identify potential risks of procedures, evaluate the probability of the occurrence of risks, and the impacts on operations to ensure appropriate risk management operations may be effectively implemented to align with the requirements of risk management.

Regarding risk management procedures, the first step is to carry out risk identification. Secondly, perform risk analysis and assessment for risks identified. Lastly, relevant departments shall propose countermeasures based on the material risk items that require risk management in the assessment results and report the estimated completion timeline to the corporate governance promotion team. After compiling risk responses and countermeasures, the corporate governance promotion team shall report to the ESG Development Committee to monitor the implementation status via the Development Committee and adjust the management countermeasures and control emphasis in due course to achieve risk management targets.

Risk Management Topics

In 2024, Ability has compiled the main risk management issues in various aspects and explained its response measures.

Aspect	Effects of Ability	Response Measures
Economic(Operational) Risk	Expand production base Increase overseas production joints in response to customers’ demand and disperse the risk of production in Mainland China. Ability Enterprise has planned to make southbound investments.	Increase the operation of the Vietnam Plant and maintain the operation of plants in Mainland China. Ability Enterprise has planned to make southbound investments in Vietnam for plant establishment and to maintain the operation of plants in Mainland China. Allocate employees with working experience in foreign countries to work in Vietnam. Encourage employees to learn Vietnamese to avoid cultural differences.
	Risk of raw material interruption The source of crucial supplies is relatively centralized. If suppliers delay the delivery or there is missing material, it will affect Ability Enterprise’s production.	Introduce the second supplier to separate the material deficiency risk. Plan and control the safety inventory of crucial supplies.
	Risk of concentration sales Customers with long-term stable cooperation can ensure the stable growth of Ability Enterprise; however, there are risks of sales concentration.	Separate customers and seek new customers. Product diversification arrangements.
	Information safety Recently network hackers, viruses, and phishing e-mails have occurred frequently; there are mass electronic procedures and network communication, and information safety control has material effects on Ability Engagement.	Reinforce information security promotion and regularly publish information safety alert reports. Perform regular information security inventory each year.
	Interest risk Interest risks are generated from bank borrowings, which are primarily for operations; such debts to support operating requirements with cash outflows do not generate high borrowing costs.	For the interest rate of bank borrowings, Ability makes its best efforts to secure the most preferred borrowing interest rate.
	Currency risk Due to cross-country operations, there are corresponding currency risks generated from the use of currencies of multiple countries, primarily the USD, RMB and VND. Such risks mostly arise from future commercial trading, recognized assets and liabilities, and net investments in foreign operating institutions.	Adjust foreign exchange positions according to interest rate and exchange rate differences, and may use spot, forward foreign exchange, exchange and derivative or non-derivative financial product contracts to reduce exchange rate risks; Plan and evaluate the storage of foreign currencies. Reinforce loan recovery.
	Credit risk Credit risks are risks arising from potential financial losses due to the inability of customers or transaction counterparties of financial instruments that cannot fulfill contract obligations, which primarily arise from accounts receivable for which transaction counterparties are not able to settle the payment based on the collection conditions.	Based on the credit loan policy of Ability Enterprise, the Company performs management and credit risk analysis based on payment and shipping conditions. Execute internal credit risk control, including the evaluation of the financial position of customers, prior experiences, and other factors. Use to regularly monitor credit limits.
Environmental risks	Climate change risk Regarding the effects of the industry chain on climate change and impacts on Ability Enterprise under the existing trends, please refer to chapeter3.1“climate change management”of ESG Report for details.	Ability executed climate change-related risk identification and management procedures; for details, please refer to Chapter3.1“climate change management”of ESG Report.
Social Risk	Human rghts management & Human resources & Occupational health and Safety risks Failure to effectively manage the human rights of employees may result in violations of laws and regulations; poor human resources management may lead to poor labor-management communication and the impact of labor shortages, affecting the smooth operation of Ability; and operational hazard management may affect the physical and mental health of employees.	Ability manages human rights, human resources, and occupational safety and health in accordance with legal requirements. For details, please refer to Chapter 4 "Happy Workplace and Social Welfare" of ESG Report.