Risk Management Policy
Risk Management Policy
The Company always strives to recognize and understand risk factors that can affect the Company`s performance, both in the short and long term. The Company`s ability to be aware of the various risks associated with the Company`s operations is to continue to provide values to stakeholders. The Board of Directors of the Company determines a risk management policy in accordance with the risks faced, with appropriate risk management, the Company can increase the opportunities to achieve the targets set.
Review of the effectiveness of the Company`s Risk Management System
The Company`s management still believes that the risk management applied is still very relevant.
Types of Risk
In carrying out its business, the Company faces several risks as follows:
- Foreign Currency Risk
Fluctuations in the exchange rates of foreign currencies, especially the US Dollar against the rupiah, risk the disruption of the Company`s operational activities mainly due to the majority of the Company`s purchases and notes payable carried out in US dollars. To provide adequate protection, the Company takes a policy to sell in US dollars and stores most assets in the form of cash and cash equivalents and investments in US dollars.
- Credit Risk
Credit risk results in losses to the company where the partner`s risk of performing an achievement by not paying bills in accordance with their maturity or failing to fulfill their contractual liabilities.
The Company monitors the receivables daily and routinely evaluates the credit limits and credit worthiness given to each customer. This is done to reduce the risk of default from customers
Accounts receivable are carried out with trusted third parties. To new customers and those who are considered risky, the Company requests payment through L / C or payment before shipping goods. The company places bank balances on financial institutions that are feasible and trustworthy, in addition the reserve for doubtful accounts has been calculated in the selling price.
- Operation Risk
The risk of disruption of part or all of the production equipment caused by anything in producing goods in accordance with the quantity and or quality that has been planned. By implementing a system and strict operating procedures that must be followed by each factory such as in terms of maintenance, prevention and checking quality of finished goods, well-maintained spare parts inventory to avoid sudden production disruptions. Sophisticated laboratory equipment and qualified staff in each factory.
Policies to maintain sufficient inventory of raw materials and auxiliary materials without forgetting efficiency are carried out so as not to disrupt production activities. The existence of good communication and mutual understanding between management and trade unions is always maintained. The three factories located in different places are free from flooding and easy access to toll roads. The Company also provides itself with adequate insurance protection for the risk of fire, flood, earthquake and business disruption.
- Market Risk
Risk of loss experienced by all market players due to economic changes or an event that has a large impact on most markets.
The fluctuations in petroleum prices, the balance between supply and demand in each market for petroleum derivative products including the ethylene market, ethylene glycol, ethoxylates, PTA and polyester will have a direct effect on the Company`s performance.
In order to reduce these market risks, the Company takes policies such as buying raw materials and selling finished goods with contracts, utilizing differences in prices in the spot market and contracts, occasionally buying some raw material needs and selling finished goods on the spot market. Prioritizing satisfying levels of service to domestic customers by building long-term partnerships.
With more diverse products the Company has the opportunity to increase flexibility in determining the combination of products sold and maximizing profits. Therefore, the Company realizes that the diversification of the types of products sold can reduce risks caused by fluctuations in market prices.
The increase in production and sales of ethoxylate products that provide high margins is one example of the risk management taken by the Company to reduce the impact of falling prices for ethylene glycol and polyester. Unhealthy competition from global industry players from countries that have excess production or large economies of scale and sell products on the Indonesian market that are open to products from China, the Middle East and India, with selling prices below the cost of production The company can occur.
Some of these products are even suspected of illegally entering Indonesia. The company is one of the players in the polyester industry and is the only mono ethylene glycol producer in the Indonesian market that is very vulnerable to such unfair competition. To reduce these risks, the Company strives to continuously reduce production costs to a minimum level by increasing the efficiency of raw material use, developing ethoxylate products, saving electricity costs and others.
The company and related associations are calling on the government to issue policies that can protect domestic industries.