1. Financial Risk
The Group’s activities are exposed to certain financial risk, mainly: credit risk, liquidity
risk, and market risk including interest rate risk, foreign exchange rate risk, and other
price risk.
Majority of the Group’s business depends on the plastic resin market condition and to
support its financial stability. The Group adopts a policy to minimize the impact of the
financial risks. Risk management is carried out by the Group’s Board of Directors. The
Board of Directors identifies, evaluates and manages financial risks, where consolidated
appropriate. The Board of Directors determine the basic principles of the overall
Group’s risk management including market risk, credit risk and liquidity risk.
2. Credit Risk
Credit risk is the risk that the Group will incur a loss arising from the customers or
counterparties due to failure to meet contractual liabilities. The Group’s credit risk is
primarily attributed to its cash in banks, accounts receivables, other receivable and
investment in bonds. The Group has policies to place its cash in banks and deposits only
in banks with good reputation. Management believes that there are no significant
concentrations of credit risk. The Group 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.
All trade receivables are evaluated periodically in which the collectibility can be
anticipated.
The credit quality of financial assets that are neither past due nor impaired and past due
but not impaired can be assessed by reference to external credit ratings (if available) or
to historical information about counterparty default rates.
To measure the expected credit losses, trade receivables have been grouped based on
shared credit risk characteristics and the days past due. The expected loss rates are
based on the profile of payments from customers and historical credit losses, if any. The
historical loss rates are then adjusted to reflect current and forward-looking information
on macroeconomic factors affecting the ability of the customers to settle the receivables.
3. Liquidity risk
Liquidity risk is the risk arising when the cash flows position of the Group 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 Group 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 credit quality of financial assets that are neither past due nor impaired and past due
but not impaired can be assessed by reference to external credit ratings (if available) or
to historical information about counterparty default rates.
4. 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
Group's exposures to interest rate risk related primarily to bank loans.
To minimize interest rate risk, the Group 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.
5. Foreign exchange risk
The Group is exposed to foreign exchange risk. Foreign exchange risk arises from
committed future transactions and realization of monetary assets and liabilities in
foreign currencies.
To manage its foreign currency fluctuation exposure, the Group maintains the exposure
at an acceptable level by buying foreign currencies that will be needed to avoid exposure
from short term fluctuations.
When considered necessary, the Group hedges its future foreign currency cash flows
requirements, especially for payments of purchases of imported materials which are
estimated based on the aging schedule of payables in foreign currencies. The purpose of
this hedging is to mitigate the impact of movements in foreign exchange rates on the
Group’s financial statements.
6. Plastic resin price risk
The Group's revenue is dependent on plastic resin process, which is highly influenced by
global plastic resin prices. Global plastic resin prices are subject to significant
fluctuations beyond the Group's control, mainly including commodity prices and supply
and demand factors.
The Group adopts policy to combine strategies of price fixing method and its timing,
while maitaining close attention on global developments that affect plastic resin market.
7. International or other country's regulation risk
The Group'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 the Group's business activities.
The Group always seeks 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.
8. Government regulation risk
The Group 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 Group's course of business.
In February 2020, Commission XI of the Indonesian House of Representatives (Dewan
Perwakilan Rakyat) approved the Minister of Finance's plan to impose excise on plastic
products. The affected products will include plastic bags. However, the implementation
of this regulation is still under evaluation by the government. Besides, some regional
government has also started to issue regulation that prohibit the usage of single-use
plastic bags. The impact of such regulations have not been determined or estimated by
the Group.
The Group adopts policy to establish product or business unit diversification which
conform to government regulation.
