The Companys ability to continuously provide added value to its stakeholders relies on its ability to understand the risks that are relevant to its operations, ability to create a mechanism to monitor such risks, and ability to manage the different contingencies arising from the risks. The risk management system aims to ensure the availability and adequacy of the Companys resources for business operations and development and to manage the foreign exchange risk, interest rate risk, credit risk and liquidity risk. The Board of Directors determines the Companys risk management system.
Type of Risks and the Management
In carrying out its business, the Company is exposed to several market risks, namely, foreign currency risk, raw material price risk, energy cost risk and demand risk.
Foreign Currency Risk
The Company is exposed to the effect of foreign currency exchange rate fluctuation mainly because of foreign currency denominated transactions such as borrowings that are denominated in foreign currency. The Company manages the foreign currency exposure by matching, as far as possible, receipts and payments in each currency.
Interest Rate Risk
Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. To manage the interest rate risk, the Company has a policy in obtaining financing that will provide an appropriate mix of floating and fix interest rates.
Credit risk refers to the risk that a counterparty will default on its contractual obligation resulting in a loss to the Company. Credit risk of the Company is primarily attributed to its cash in banks, trade accounts receivable and other accounts receivables from a related party. The Company places its bank balances with credit-worthy financial institutions while trade accounts receivable are entered with respected and credit-worthy third parties. The Company continuously monitors its exposure and the aggregate value of transactions concluded is spread among approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management annually.
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Groups short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring the forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities.
Evaluation and Effectiveness of Risk Management System
Risk identification and evaluation are constantly carried out by the Company through each of its department. The Board of Directors, together with the Internal Audit and Board of Commissioners review and formulate the required management and mitigation strategy. The Board of Commissioners plays a role in monitoring the implementation of activities of risk management and authorise the management to fully manage the risks as they understand the most about the risks faced by the Company.
In addition, the Board of Commissioners is encouraged to carry out the following function:
- To evaluate Risk Management policy
- To evaluate the Board of Directors responsibility and implementation of risk management system as stipulated in point (1) above.
- To evaluate and approve the Board of Directors requests that are related to the transactions needing approval from the Board of Commissioners.