The Company manages corporate risk with comprehensive and integrated risk management, to manage the various risks faced by the Company and its subsidiaries, as well as to mitigate the impact of possible risks by taking into account the risk profile of each of its business units as well as the risk profile as a holding company as a whole. The implementation of Risk Management goes through several processes with the following stages:
- Risk identification by considering internal and external factors;
- Continuous and timely analysis and evaluation to determine the priority scale and source of risk;
- Ongoing implementation of risk mitigation strategies and the resources required for such management;
- Communication and participation of all relevant stakeholders; and
- Recording and establishment of risk profiles to be monitored and reviewed for developments and changes.
Risk Profile of the Company
The Company has a risk profile based on the main risks faced in its operational activities, as follows:
Credit Risk
Credit risk is the risk of one party to a financial instrument failing to fulfill its obligations and causing the other party to suffer a financial loss. The Company’s financial instruments with potential credit risk consist of cash and cash equivalents in banks, trade and other receivables. The maximum exposure to credit risk is equal to the carrying amount of these accounts. For credit risk related to banks, only banks with good credit rating are selected. In addition, the Company’s policy is not to limit exposure to only one particular institution, so the Company has cash and cash equivalents in various banks.
Currency / Exchange Rate Risk
Currency risk is the risk of fluctuations in the value of financial instruments due to changes in foreign exchange rates. The Company conducts transactions using foreign currencies, including the financing of the Company’s working capital, so that the Company must convert Rupiah into foreign currencies, especially US dollars, to meet the needs of liabilities denominated in foreign currencies at maturity. Fluctuations in the exchange rate of the Rupiah against the US dollar can have an impact on the Company’s financial condition. The Company manages currency risk by monitoring currency exchange rate fluctuations continuously so that it can take appropriate actions such as the use of hedging transactions if necessary to reduce foreign currency risk.
Interest Rate Risk
Interest rate risk is the risk of fluctuations in the value of financial instruments due to changes in market interest rates. The Company is exposed to interest rate risk mainly because it borrows using floating interest rates. The Company monitors the impact of interest rate movements to minimize the negative impact on the Company.
Liquidity Risk
Liquidity risk is the risk that the Company will experience difficulties in obtaining funds to fulfill its commitments related to financial instruments. The Company manages liquidity risk by maintaining sufficient cash and cash equivalents to enable the Company to fulfill its commitments for the Company’s normal operations. In addition, the Company also monitors projected and actual cash flows continuously and monitors the maturity dates of financial assets and liabilities.