Risk Management
The Company’s risk management always keeps up with the development of business and the increasing complexity of activities. We believe that improving risk management will result in a reliable risk mitigation system. We continuously conduct improvement to support the governance system. For the Company, an optimum risk management is important to detect the factors which may lead to the inability to achieve our goals, which consists of numerous aspects such as strategic, operational, compliance and financial goals.
A comprehensive Risk Management System is under development through cooperation between the Company and independent consultant. Audit Committee is supported by Board of Commissioners in performing this responsibility, in which Board of Commissioners actively monitors the implementation of Risk Management by Board of Directors and performs the function to evaluate Risk Management Policy, to evaluate Board of Directors’ accountability and the implementation of Risk Management Policy and to evaluate and approve Board of Directors’ requests pertaining the transactions which require approval from Board of Commissioners.
Risk Management Profile
Company may face with the risks arising from land permits which may turn to a dispute with local people, which may arise from multiple ownership, land border issues and uncertain regulations enacted by the Local Government concerning the land, which negatively affect DSN Group. Despite the fact that the company has finalized any deal with previous land owners, such risks which arisen from the uncertain land price should be accounted to the extent the permits pertaining to the land had been obtained.
To anticipate the risks, the Company develop CSR programs to the company’s interest and business strategy with local people involvement.
The Company strictly prohibits land clearing through open burning . Nevertheless there are risks posed by third parties, beyond the company’s area of control, which still practise open burning to clear land for subsistence farming or agriculture, which may negatively affect the company. This issue is compounded by Climate Change that causes unpredictable and extreme weather conditions (EL Nino) such as excessive rain that causes floods and prolonged drought conditions as well as high ambient temperatures.
This poses risks that will result in lower production and yields because of bad weather. As well as fire and flooding risks that may cause property damage and hazards to our employees as well as the community at large.
In anticipation of such risks, the Company has sustainability initiatives for both soil and water conservation as well as measures to reduce carbon emissions in its operations. Proactive fire monitoring is done regularly onsite and offsite using available satellite data to detect hot spots. This is complemented by our community outreach program to create awareness of the climate change factors, fire hazards and mitigation initiatives that can be taken.
Please see our sustainability section for more details on such risk mitigation measures for fire and climate change.
The company face with international CPO price fluctuation. Such risk may arisen as a result of export taxes or tarrifs or restriction by the local government or by any other government in any other countries.
To anticipate the risk, the Company signed a longterm contract with the primary buyer and has always trying to better the quality of CPO produced by the Company.
From time to time, the company seeks out business opportunities with prospect of growing and prosperous in the long-term. Should the company had run out its capital, the company required more capital to capitalize such opportunities. Such additional capital could be new capital or any other form of capital to make the company thrives.
To anticipate the risk, the Company at all times has real time information on company cash reserves to ensure that cash in hand is more than adequate to any liabiilties. The company also monitor its debt based on the previous year EBITDA.
Despite the fact that the company make most payment in Rupiah, the company revenue from wood processsing mostly in foreign currency. In addition, net profit from CPO based on the auction at the port and depend on the international CPO price which quote the price in foreign currency.The correction of Rupiah exchange rate against foreign currency shall negatively affect the company’s performance as a result of revaluation in US Dollar.
To anticipate the risk, the Company implement hedging strategy. In addition, the company had secured a deal to buy fertilizers in a fixed exchange rate.
The large part of company’s debt, both short-term and long-term, has a floating interest rate. The interest rate of all bank loan by DSN Group is a subject to revision by the creditor, which revised the interest rate based on economic factors and monetary policies. If the interest rate is increase, the cost of interest shall be increase accordingly and shall negatively affect the company’s business, its financial condition and its profitability.
To anticipate the risk, the Company prepared a financial projection on assumstions such as credit interest rate projection, foreign currency fluctuatioln and inflate rate. Furthermore the company also monitor bank interest rates.