The corporate policy on risk management is to identify the whole risk factors to the business operation and conduct risk measurement and the potential impacts according to the corporate rules and procedures. The Company shall review the existing policy and risk management system in order to prepare Company to be a responsive organization against the market dynamics, products and best market practices.
During 2014, the Company identified a number of risk factors potentially affecting the business operation of the company. Below are the risk factors that can be identified and the mitigation factors:
|The business of the Company was exposed to credit risk which was generated from the failure of the corporate customers to fulfil their contracts. As the mitigation step, the Company suggested each business unit and the subsidiaries to manage the credit risk to its business segments in accordance to the regulation, procedures and control from the companies relating to the management of customer credit risk. In addition, each business unit and the subsidiaries were recommended to closely monitor the customer's receivables. In 2014, the management of the Company ensured no risk emerging from the third party receivables.
|Risk of Exchange Rate
|Risk of exchange rate emerged as impact from the fluctuating financial instrument due to the change in exchange rate. In operating the business, the Company was exposed to the risk of exchange rate as the Company employed two types of exchange rates, namely US Dollar and Rupiah. The fluctuation in both exchange rates would bring impact on debt structure of the Company in US Denomination, which the Company received from the related party.
|Interest Rate Risk
|Risk of interest rate would emerge as the impact from the fluctuating financial instrument due to the change in market interest rate. The Company's business was exposed to the risk factor as the Company received short term and long term loans charged with floating interest rate. As part of mitigation step, the Company's policy on borrowing was to seek for loan that offered fixed interest rate in order to minimize the risk of fluctuating interest rate.
|Price risk would emerge as the impact from the change in price of iron as base material in the production process of the company since the material was marketable based on the international price index. As part of mitigation step, the Company's policy to minimize the impact of material price risk by making an agreement with major iron suppliers, such as PT Krakatau Steel and PT Ispat Baja, as well as establishing material reserve to support the existing inventories. The Company also opened agent abroad, including in China.
|Liquidity risk emerged from the failure of the Company to fulfil the maturing liabilities. As part of mitigation step, the Company had evaluated and carefully monitored the cash in and cash out positions to ensure the fund adequacy to pay for the whole short term and long term liabilities. The Company paid the liabilities using the receivables from the customers whose credit term matured in one month. In addition, the Company also saved fund in the forms of cash and term deposits to secure the liquidity position at the safe level in order to fulfil its working capital.