Risk Management Policy
Risk Management Policy

Risk is a possible loss or a return that is less than expected, which is quantifiable and may be caused by the uncertainties faced by the Company in performing its business activities. The Company always tries to spot and understand the risk factors that may affect the Company’s performance, both in the short and long terms. The Board of Directors of the Company formulates a risk management policy in line with the risks faced. The Board of Directors is aware that by adopting an appropriate risk management, the Company can increase the likelihood to achieve its previously established targets. The Company’s management still convinced that the applied risk management is still very relevant.

There followings are some risk categories faced by the Company:

1.  Currency Risk 

Currency risk is the risk that the Companys operations will be affected by the fluctuating exchange rate of foreign currencies, especially US Dollar against Rupiah.

Most of the Companys purchases and the notes payable are denominated in USD, so that the fluctuating exchange rate of USD against Rupiah will directly influence the Companys performance. In order to hedge this currency risk, the Company applies a policy of selling in US Dollar keeps most of its liquid assets in the form of cash and cash equivalent as well as investment in US dollar.

2. Credit Risk   

Credit risk is a risk that a customer will be in default by failing to pay the invoice when it is due.

In order to reduce the possible default of a customer, the Company daily monitors its accounts receivable and regularly reviews each customers credit standing and credit limit. The Company would ask for L/C or advanced payment from a new customer and those who are deemed to be of high risk. In addition, some allowances for doubtful accounts have been considered in selling quotations.

3. Operational Risk  

Operational risk is the risk that some or the whole production equipment will fail, due to any reason whatsoever, to produce the right quantity and/or quality products as planned.

The Company has established stringent operational systems and procedures for all of its plants, including in preventive maintenance and quality checking of finished goods. Adequate spare part inventory is very well maintained to avoid sudden interruptions. Each plant is equipped with advanced laboratory equipment and qualified personnel. A very good level of understanding between the management and the labor union has been well preserved. The three plants are located in three separate areas free from getting flooded and with easy access to toll roads. The Company has also safeguarded itself by having an adequate insurance coverage, including against risks of fire, flood, earthquake and business interruption.

The Company sets a policy to hold a safety stock of main and auxiliary raw materials, without sacrificing efficiency, to avoid interruption of production activities.

4. Market Risk

Market risk is a risk common to all market players to incur a loss. The loss may be incurred simply because of economic changes or other events that result in big impacts on most markets.

Fluctuations of crude oil price and the balance of supply of and demand for each oil derivative product in their respective market, including ethylene, ethylene glycol, purified terephthalic acid, and polyester, will directly impact the                        Companys performance. To reduce market risk, the Company adopts a policy to purchase raw materials and to sell finished goods by contract. However, to take advantage of price differences between spot market and contract, once in a while the Company also buys some of its raw materials and sells its finished goods in spot market. The Company also establishes long-term partnerships by focusing on satisfactory service quality, especially to local customers.

The Company realizes that product diversification may reduce the risk associated with fluctuating market price. With more product variety to offer and unstable margin for each product, the Company has got a chance to add flexibility in selecting product portfolio to sell and to maximize profit. Increasing the production and sales volume of high-margin ethoxylate products is an   example of risk management that the Company undertook to reduce the impact of decreasing ethylene glycol and polyester prices.

As one of the players in polyester industry and the only producer of mono ethylene glycol in Indonesian market, where imports from China, Middle East and

India are freely flowing, the Company is very susceptible to unfair trade practices of global industry players from those countries that have excess production volume or huge economic scale and dump their products into Indonesian market. Some of those products are suspected to illegally enter Indonesia. To reduce this risk of unfair trade practices, the Company has put a lot of efforts to continuously reduce its production costs to a minimum level by continuously improving efficiency in raw material consumption, ethoxylate product development, energy cost control, etc. With the related industry associations, the Company appeals to the government to issue policies that protect the domestic industries from those unfair trade practices.