The risks that may have a negative impact on operational performance as well as the Company's tips to minimize these risks are as follows:
- Raw Material Supply Risk
Cassava tubers are the main raw material in the manufacture of tapioca flour and the dregs in the form of onggok are one of the main raw materials for making citric acid. Cassava is planted and harvested all year round, but prolonged dry season can affect the harvest. In addition, cassava farmers can choose to plant other crops apart from cassava trees depending on the price level of their respective crops / plantations from time to time. This could affect the supply of raw materials which could indirectly result in a decrease in the Company's operating results.
The company conducts research and development to obtain superior cassava seeds that can increase the productivity of the harvest of cassava farmers, build partnerships with farmer groups and adjust the lowest purchase price (floor price) of cassava from time to time.
- Risk of Fluctuation in Raw Material Prices
The price of cassava tubers fluctuates from time to time depending on the yield and market demand. This fluctuation in raw material prices affects the cost of goods manufactured by the Company which in turn affects the level of the Company's profits.
To reduce this risk, the Company implements a cost efficiency program including fuel costs and as far as possible adjusts the selling price of the Company's products to follow the purchase price movement of cassava so that the decrease in profit margins due to the increase in raw material prices can be minimized.
- Business Competition Risk
Competition caused by the increasing number of similar products produced by other companies may result in a decrease in the Company's sales volume and market share.
Company tips for reducing this risk include:
- Strengthening the supply network of cassava to the Company's factories, among others, by providing assistance to farmers with superior cassava seeds and fertilizer.
- Maintaining the quality of its products in order to gain consumer confidence so as not to switch to competing products.
- Expanding production capacity.
- Produce new products made from cassava.
- Interest rate
Apart from self-financing, the Company has loans to fund its business. Changes in market interest rates will result in an increase in interest payment expenses.
The company will manage interest expense through a combination of debt denominated in Rupiah and USD, by evaluating trends in market interest rates. Management also reviews various interest rates offered by creditors to obtain favorable interest rates before making a decision to enter into debt commitments.
- Foreign Currency Risk
Considering that part of the Company's loans are denominated in foreign currencies, a decrease in the Rupiah exchange rate against foreign currencies will result in an increase in the burden of paying interest and principal payable to creditors.
The company manages exchange rate risk by adjusting between receipts and payments in the same currency and carries out supervision.
- Credit Risk
The company will experience the risk of loss arising from customers or counterparties due to failure to fulfill its contractual obligations.
The Company controls credit risk by engaging in business relationships with other parties that have credibility, establishing credit verification and authorization policies, and monitoring receivables collectibility on a regular basis to reduce the amount of bad debts.
- Liquidity Risk
Companies will experience liquidity risk if they do not have sufficient cash flow to meet their obligations.
The Company's management will monitor and maintain the amount of cash and cash equivalents deemed adequate to finance the Company's operations in overcoming the effects of cash flow fluctuations. Management also conducts regular evaluations of projected cash flows and actual cash flows, including maturities of debts, and continuously conducts reviews of the financial markets for optimal funding sources.
Wisma Budi, Lt 8 – 9
Jl. H.R. Rasuna Said Kav. C-6
Jakarta, Indonesia 12940
Phone: + 62-21- 521 3383 (Hunting)
Fax : +62-21-521 3392