Risk Managemnt Policy
The Risk of Raw Material Availability and Price Fluctuation
To meet the needs of certain raw materials, the Company imports those commodities from overseas since most of main raw materials used by the Company are commodities such as corn and soybean meal. The availability and price of these raw materials depend on the weather, harvest, and the level of supply and demand, especially if those raw materials are not available in the local market. The Company manages such risk by reducing the cost through bulk purchase. In addition, the Company continues to conduct research and development to find materials that can substitute the imported raw materials.
Foreign Exchange Risk
The Company has been highly exposed to Rupiah against other foreign currency, especially US Dollar with the purchase of imported raw materials. The Company conducts anticipation to mitigate the risk of fluctuation of currency by doing a good cash management and natural hedging. Moreover, in order to get the best rate in any transaction, the Company also monitors the changes in foreign currencies against the value of the Rupiah, and conditions that can affect it.
Fluctuation of Live Bird Price Risk
Live bird is commodity product, whose price is influenced by supply and demand. In order to reduce the risk of temporarily/seasonal price reduction of live birds, the Company endeavors to maximize the production capacity of its modern slaughterhouses as live birds which are slaughtered will be stored to be sold later when the price increase or to process it further to be processed food.
Epidemic Disease Risk
The death of the birds is frequently caused by epidemic disease. To anticipate this risk, the Company implements bio-security in all Company’s facilities, as well as providing consultation and guidance to the farmers. In addition, to prevent the spread of epidemic disease, the Company conducts planned and monitored poultry vaccination.
Interest Rate Risk
The Company has exposure to interest rate risk, credit risk and liquidity risk related to financing facilities in the form of bank loan and leasing financing. In order to minimize interest rate risks, the Company manages interest expense through a combination of fixed rate loan and variable interest rates to evaluate the market interest rate.
The management also reviews various interest rates offered by creditors prior to making decision to engage in loan agreement in order to obtain favorable interest rates. Furthermore, the Company also continually conducts business relationships with other credible parties, establishing a policy on credit verification and authorization, and monitoring the collectability of account receivables on a regular basis to reduce the amount of bad debts accounts.
The Company evaluates periodically cash flows projection and actual cash flows including the schedule of debt maturities, Moreover, in order to obtain the optimum source of funding, the Company continuously reviews the financial markets.