Risk Management Policies
Risk Management
The Company realizes that risk has become an integral part of every business process carried out by the organization. The impact of these risks can significantly affect the stability of the organization, which of course is inherent in all activities and decision-making in running a business.
The Company's risk management is carried out by taking into account changes in the environment, both external and internal. Risk management is also required in order to strengthen the application of GCG principles, especially related to upholding sound business practices and providing added value in line with the expectations of stakeholders.
Risk Factors
The Company’s financial performance and operations are influenced by many risk factors. These risks vary widely, and many are beyond our control. Some risks may be unknown to us, while other risks currently believed to be immaterial could turn out to be otherwise. Our business, financial conditions, results of operations and prospects could be materially and adversely affected by any of these risks. Therefore, we aim to mitigate the exposures through an appropriate risk management and internal control system.
| Types of Risk | Description | Mitigation Efforts |
|---|---|---|
| Outbreaks of Livestock Diseases | Outbreaks of livestock diseases such as Avian Influenza, Newcastle Disease, Infectious Bronchitis and Infectious Bursal Disease could significantly disrupt our operations. Avian Influenza is highly contagious among domestic and wild birds and can cause sickness or death of domesticated birds, including chickens, geese, ducks and turkeys. Aquaculture and beef cattle businesses are also vulnerable to diseases and other biological hazards. | Management mitigated disease outbreaks or other biological hazards risks by deploying an internal biosecurity policy and implementing biosecurity measures in all of our farms, ponds and production facilities. |
| Raw Material Price Fluctuation | The largest component of the cost of goods sold is the cost of the corn used in the preparation of feed. The price and availability of corn can therefore have a significant effect on our cost of goods sold. Meanwhile, the requirement of soybean meal, the second largest component of feed production, is fulfilled by imports. Market prices for corn and soybean meal may be subject to fluctuations resulting from weather, the size of harvests, transportation and storage costs, Government's agricultural policies, foreign exchange rates and other factors. Accordingly, we may buy soybean meal and/ or corn at a higher price which will adversely affect our financial performance. |
We source the majority of our corn locally and dry it in our corn drying facilities. The processed corn is stored in our warehouse or silos. |
| Foreign Exchange Rate Fluctuations | A portion of our cost of goods sold related to our feed business are denominated in foreign currencies, the bulk of which are U.S. dollar denominated or linked to the U.S. dollar predominantly for soybean meal. The majority of our net sales are denominated in Rupiah. As a result, we are exposed through our feed business to a certain degree of risk in the fluctuation in the exchange rates between the U.S. dollar and the Rupiah. | We monitor and hedge our foreign exchange risk within the scope of Bank Indonesia regulations. |
| Competition | We face competition from other Indonesian producers in the domestic market in which we sell our products. In addition, large international producers may seek to penetrate the Indonesian market in the future. Key factors affecting our competitiveness include price, product quality, brand identification, breadth of product line, distribution reach and customer service. Increased competition may result in price reductions for our products and a loss of market share, greater volatility in our revenues, and damage to our reputation which may in turn have a material adverse effect on our business, financial conditions, results of operations and prospects. | We exclusively use the Indian River breeds, which are specially tailored for tropical climate conditions, particularly in relation to tolerance of heat, humidity and resistance to disease. Therefore, our farmers benefited from lower cost resulting from lower mortality, better growth rates and better feed-to-weight conversion ratios. As part of our integrated operations, we can provide feed and DOC to provide a complete package of services and products to our farmers and support them with technical advice to improve productivity. In addition, since Indonesia is a Muslim-majority country, our slaughterhouses, food processing facilities and distribution channels are "halal" certified according to religious requirements. |
Evaluation of Risk Management Implementation
The Company is aware that the benefits of implementing and maintaining a successful risk management system include:
- wider range of opportunities available to achieve our mission and business objectives;
- improved results while minimising unintended negative outcomes and related costs or losses;
- minimal variances in performance and fewer interruptions;
- optimal deployment of resources as a result of providing risk information to assess the costs and benefits in decision making;
- enhanced organisational resilience and flexibility by helping management identify and respond to internal and external changes in a timely and embedded manner;
- improved collaboration, trust, and information sharing across the organisation, and creation of a common enterprise approach.
The Board of Commissioners is responsible for overseeing risk management and the internal control system along with the management. On the other hand, the management has the responsibility to identify, manage and report to the Board the key risks faced by the Company. The management is also responsible for ensuring that the risk management system is effectively implemented within the business units.
The Board of Commissioners and the Board of Directors conducted brainstorming sessions regularly with senior management teams of the concerned strategic business units to identify any risk related issues within the Company’s operating environment. The identified risks and recommended actions required to mitigate those risks were recorded, assessed and developed to be presented to the Board so that the effectiveness of the risk management system can be reviewed and evaluated.
Statement of the Board of Directors and/or Board of Commissioners on the Adequacy of the Risk Management System
The Board of Commissioners assesses the adequacy of effective risk management as reflected in:
- Adequacy of policies and procedures of Risk Management and determination of effective Risk Limit including:
- determining the use of risk management measurement methods and information system.
- determining and setting Risk Limit.
- determining risk rating assessment.
- determining a contingency plan for the worst-case scenario.
- determining internal control system within the implementation of Risk Management
- Adequacy of risk identification, measurement, monitoring and control processes, and an adequate Risk Management Information System.