RISK FACED BY THE COMPANY
The Company’s business operation is exposed to any variety of financial risks, thus the Company remains alert to identify the risks that may be faced, by implementing a risk management system as a tool to minimize unpredictability of market and also always seeks to improve its business opportunity.
- Marketing Risk
The global economy may have it's affect to the Company’s performance and revenue. The downturn in the global economy can reduce demands for automotive products, which in turn will reduce the demand of the Company’s products from tire manufacturers. To anticipate the risk, the Company and its subsidiaries continues to actively expand its market by entering into new markets and maintain the existing ones by giving competitive prices through efficient effort; furthermore decrease the production cost.
- Competition Risk
Global market for tire cord products is more competitive nowadays. Changes in selling price may have an impact on the Company’s profit margin. To mitigate this risk, the Company exerts efforts to maintain good relationships with existing customers, maintainthe Company’s high performance such as: delivering high quality products and consistently provide service excellence. The Company also endeavors to be more competitive and efficient in products without putting quality or flexibility at stake. The Company also utilizes the network and information related to market from majority shareholders.
- Risk of Raw Material Supply
The Company imports most of its raw materials. Thus the products price fluctuations are largely linked demand and supply of raw material in global market. The Company mitigates risk of price fluctuation and scarcity of supply through constant monitoring of the market dynamic. The Company also signs supply contract that ensures the long term raw material supply and supports minimization of the price fluctuations and takes profit gains from purchasing in large amount. The Company also has listed some alternatives suppliers both local and international to anticipate the lack of raw material supply.
- Risk of Currency
The Company’s functional currency is USD, and the exposure to foreign currency arisen from transactions denominated in Rupiah, is particularly for some of local sales, employee salary, utilities and administrative expenses. However, this risk exposure is partly eliminated with natural matching of currency expenses and incomes in same currencies (natural hedging). In addition, The Company implemented operational hedging procedure to avoid currency risks.
- Risk of Operation
Risk of operations may poses a negative impact on a day to day operations of the Company and its subsidiaries, workers’ safety and health, and nearby surroundings. These risks among others are, damage of machine/equipment, disruption of ERP system, accidents at work, strikes actions, compliance to standard operating procedures, and failure in environmental management. To minimize these risks, the Company and its subsidiaries have consistently conducted maintenance work to the equipment in a periodical basis, regenerated the machines, giving training and courses to the employees, appointing professional contractors, implemented zero accident policy, built good relationships with the employees and the nearby society, and implemented environmental management that conforms to international standards.
- Risk of Credit
Risk of credit may arises from customers or third parties that fail to meet their contractual obligations that may results in a loss for the Company and its Subsidiaries. There is no significant risk of credit for the Company and its subsidiaries. The Company and its subsidiaries manages and controls the credit risk by setting the limits for credit risk that can be received by each customer and monitor the risk related to the limits. The Company and its Subsidiaries believes that they can control and maintain the minimum exposure to risk of credit, as both of them have clear policies in creating partnership with the customers with binding legal agreements in place.
- Capital Risk Management
The purpose of the Company and its Subsidiaries to manage capital structure are to safeguard its ability to maintain its business continuity so that the Company and its Subsidiaries may continue providing returns for shareholders and benefits for other Stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company and Subsidiaries monitors capital based on the debt ratio to equity. This ratio is calculated by dividing total debt by total capital. The Company and Subsidiaries strive to maintain a debt to equity ratio remained at a healthy rate.
The Company continues to manage the overall risk management. Monitoring of the implementation is closely monitored both internally and externally by the Company’s management. The Company’s risk management systems continue to be evaluated and improved through discussion of the management. So far, the implementation of risk management was considered effective, but the development would continue to be reviewed in the future.