In conducting the operational, investing, and financing activities, the Company and its Subsidiaries face business risks.
The risk management policy of the Company aims to minimized the undesirable impact to the Company performance. The guideline set the goal and actions to be taken in managing the risks faced by the Company.
Credit risk is the risk that one party of financial instruments will fail to discharge its obligation and will incur a financial loss to other party. The Company is exposed to credit risk arising from the credit granted to customers. Credit risk is managed by proper due diligence about customer. Customer are given credit only after satisfactory scrutiny of their track record, business potential, their financial strength, perceived reputation in the industry and evaluation of customer’s board of management.
The credit limits are monitored based on above parameters. However, not all customers require credit, in which case, sales are on cash basis. Under cash sales term, payment is received either in advance i.e before delivery and also immediately after completing delivery.
The liquidity risk is the risk when the cash flow position of the Company indicates that the short-term revenue is not enough to cover the short-term expenditure. In managing liquidity risk, the Company monitor and maintain level of cash and banks deemed adequate to finance the Company’s operation and to mitigate the effect of fluctuation in cash flow. The Company also regularly evaluates cash flow projections and actual cash flows, including the maturity schedule of current liabilities, and continues to examine financial market conditions to maintain flexibility in funding by maintaining availability of credit facilities.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. This risk primarily related to loan. The Company policies related to interest rate risk from loan is to charge the change in the floating rate to customers through selling price.
Foreign exchange rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. This risk primarily related to import purchases in foreign currency. The Company mitigated this risk by charge the foreign exchange rate fluctuation to customers through selling price.
The competition within the retail business is fierce as the entry barrier is low. The competition was particularly rough for baby toiletry, teen face powder, where the Pigeon products are in direct competition with some big companies. Besides, despite holding the Pigeon brand distribution right for Indonesia market, distributorship does belong to the Company, there are Pigeon products illegally imported into Indonesia.