Risk Management System

1. Financial Risk

The Company’s activities are exposed to certain financial risk, mainly: foreign exchange rate and fluctuation of plastic price risks.

Majority of the Company’s business depends on the plastic resin market condition and to support its financial stability. The Company adopts a policy to minimize the impact of the financial risks.

The liquidity risk management includes managing the profile of loans maturities and funding sources. Maintaining sufficient cash and cash equivalents and ensuring the availability of funding from existing credit facilities and the ability to face the market changes.

The maximum exposure of credit risk is reflected in each financial asset recorded in the consolidated statements of financial position.

All trade receivables are evaluated periodically in which the collectibility can be anticipated.

2. Interest Rate Risk

Interest rate risk is the risk that the fair value or contractual future cash flows of financial instruments will be affected due to changes in market interest rates. The Company exposures to interest rate risk related primarily to bank loans.

To minimize interest rate risk, the Company manages interest expenses by a combination of debt with fixed interest rates and variable interest rates with tendency to evaluate market interest rates. Management also conducts assessments of interest rates offered by banks to obtain the most favorable interest rate before taking any decision to enter new loan agreement.

As of December 31, 2018, based on a sensible simulation, had interest rates of bank loans been 1% higher/ lower (December 31, 2017: 1% higher/lower), with all other variables held constant, profit before income tax for the year ended December 31, 2018 would have been Rp3,447,595 lower/ higher (for the year ended December 31, 2017: Rp1,534,383 lower/higher) mainly as a result of higher/lower interest charges on floating rate bank loans.

3. Credit Risk

Credit risk is the risk that the Company will incur a loss arising from the customers or counterparties due to failure to meet contractual liabilities. Management believes that there are no significant concentrations of credit risk. The Company controls the credit risk by doing business relationships with other parties who are credible, setting verification and authorization policies of credit, and monitor the collectibility of receivables on a regular basis to reduce the amount of bad debts

4. Foreign Exchange Risk

Foreign exchange is risk the risk that the fair value or future contractual cash flows of a financial instrument will be affected due to changes in exchange rates. The Company exposures to foreign exchange risk relates primarily with bank loans.

To manage the risk of foreign currency exchange rates Company converted its debt to the amount of foreign currency to Rupiah.

The Company has transactional currency exposures. The exposure arising from transactions conducted in currencies other than the functional currency of the operating unit or the counter party. The Company’s foreign currency exposures are not material.

As at December 31, 2018, based on a sensible simulation, had the exchange rate of Rupiah against the US Dollar depreciated/ appreciated by 1% ( December 31, 2017: depreciated/ appreciated by 1%), with all other variables held constant, profit before income tax for the year ended December 31, 2018 would have been Rp 22.59 billion lower/ higher (for the year ended December 31, 2017 : Rp 14.72 billion lower/ higher), mainly as a result of foreign exchange losses/gains on the translation of purchases denominated in US Dollar.

5. International or Other Country’s Regulation Risk

The Company’s course of activities including export and import of goods in international market. Uncertainty in international market or other country’s regulations could impact to Company’s business activities.

The Company always seek for supplier chain with the best quality in various countries and expanding its export market globally by considering and understanding designated country’s characteristics and business risk.

6. Liquidity Risk

Liquidity risk is the risk arising when the cash flow position of the Company is not enough to cover the liabilities which become due.

In the management of liquidity risk, management monitors and maintains a level of cash and cash equivalents deemed adequate to finance the Company operations and to mitigate the effects of fluctuation in cash flows. Management also regularly evaluates the projected and actual cash flows, and continuously assesses conditions in the financial markets for opportunities to obtain optimal funding sources.

The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratio in order to support its business and maximize shareholder value. The Company is not required to meet any capital requirements.

The Company manages its capital to safeguard the Company’s ability to continue as a going concern in order to maximize the return to shareholders and benefits for other stakeholders and to maintain optimal capital structure to reduce the cost of capital.

7. Fair Value Estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

PSAK 68, "Fair value measurement" requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

  • quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1),

  • inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2), and

  • inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).

The fair value of most of the financial assets and liabilities approximates their carrying amount, as the impact of discounting is not significant.

There were no transfers between levels 1 and 2 during the period.

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date.

The quoted market price used for financial assets held by the Company is the current bid price, while financial liabilities use ask price. These instruments are included in level 1.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

  • the use of quoted market prices or dealer quotes for similar instruments; and

  • other techniques, such as discounted cash flows analysis, are used to determine fair value for the remaining financial instruments.

8. Government Regulation Risk

The Company is operating its business in Indonesia in compliance with government regulations and policies. Government might issue new regulations and policies which will directly or indirectly impact to the Company’s course of business.

The Company adopts policy to establish product or business unit diversification which comform to government regulation.

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