In conducting its business activities, the Company is exposed to risks that if not well anticipated and prepared may affect the earnings. The following risk factors are material risks for the Company as well as material and general business risk factors which have been weighed based on the impact of each risk to the Company’s financial performance starting from the main risks.
Some of the risks that could affect the Company’s business are classified as follow:
MAIN RISKS WITH SIGNIFICANT IMPACT ON THE COMPANY’S BUSINESS SUSTAINABILITY
Risk of Business Competition
In conducting its business activities, the Company faces competition from imported carbide, mainly from China. Calcium carbide imported from China is offered at lower price compared with calcium carbide produced by the Company, so ability to maintain product quality is important to maintain the Company’s position as the largest producer of calcium carbide in Indonesia.
MATERIAL BUSINESS RISKS
- Risk of Raw Material Price Fluctuation
Main raw materials of the Company’s products are limestone and metallurgical coke, both of which are commodities with fluctuating prices from time to time. The Company can’t avoid the price fluctuation completely and this could adversely affect the Company’s profit margin. In addition to raw materials, the Company’s production cost is also highly dependent on price of gas, which is one of the energy sources on the production process.
- Risk of Rupiah Depreciation Against Foreign Currency
In carrying out its production activities, the Company uses imported direct raw materials by approximately 20% of total production cost. On the other hand, majority of the Company’s sales are domestic sales. Therefore, Rupiah depreciation against foreign currency may adversely affect the Company’s financial performance.
- Risk of Delay on the Company’s Expansion Plan
In line with the plan to use the proceeds from the initial public offering of shares, the Company will use the funds for expansion by establishing carbide desulfurizer and high-grade silica alloy factories.
The Company’s expansion plan could face technical constraints, such as construction and operational delays. The execution timeliness will highly depend on timeliness of factories construction and machineries/equipment procurement and installation. In the event of matters that could hamper the expansion plan, it could adversely affect the Company’s business prospects.
- Risk of Depedency on Suppliers
The availability of raw materials is crucial for companies on manufacturing industry in general, as well as the Company which is engaged in calcium carbide and ferro alloy industries. The Company relies on suppliers to provide raw materials such as metallurgical coke and limestone. Therefore, dependency upon suppliers is an unavoidable risk to the Company. To minimize the risk, the Company has established good relationship with more than one supplier. This is expected to minimize the risk of dependence on suppliers.
- Risk of Failure to comply with the Applicable law and regulations
In conducting its business activities, the Company is required to comply with the applicable law and regulation on the industry including regulations imposed by Government Agencies such as Ministry of Trade, Ministry of Industry, Ministry of Finance, Ministry of Manpower and Transmigration, as well as local regulation and regulations imposed by the authority on destination country of export. Failure to comply with the law and regulations could adversely affect the Company’s business activities, business prospect and financial performance.
- Risk of Raw Materials Availability
Kelangkaan sumber daya, dalam hal ini bahan baku, merupakan salah satu risiko material yang dihadapi
The scarcity of resources, in this case raw materials, is one of the material risks faced by the Company. Although since its establishment until now, the Company has not found any significant constraints in obtaining raw materials, it should be categorized as a potential risk along with the Company’s growth, especially in relation to the increase in production volume in the future.
- Risk of Government Regulation Amendment
So far, the government regulation on calcium carbide industry tends to benefit the Company as local producer. There are some regulations regulating carbide import duty and application of Indonesian National Standard (SNI) certification for imported carbide. Any changes related to the Government Regulation for calcium carbide industry could affect the Company’s business prospect.
- Risk of Legal Compliance
In conducting its business activities, the Company is required to continuously comply with the applicable laws of the Republic of Indonesia. The Company are required to have some mandatory business licenses. If the Company is unable to obtain or renew required licenses, this could adversely affect the Company’s business activities.
- Risk of Technological Change
In maintaining its business continuity, the Company must keep up with technological development, especially calcium carbide and ferro alloy technology. If the Company and Subsidiary can’t keep up with the latest technology development, it could adversely affect the Company’s business activities, business prospects, and financial performance.
- Risk of Reliance on Management and Key Employee
Since established until now, the Company is lead by experienced senior management team. It can be said that the Company’s success is the work of current management. If any of the management team decide to quit and the Company can’t find a suitable replacement on short period of time, it could adversely affects the Company’s business activities, business prospects, and financial performance.
Calcium carbide and ferro alloy are industries that rely on employee with specific skills. The Company recognizes that the need for such employee is unavoidable to maintain continuity of business activity .
- Risk Related to Safety, Health and Environment
Production activities are activities that require special handling and should be done with caution. Inadvertence on calcium carbide production process, storage or distribution can potentially lead to workplace accidents. Should any of these occur, it could adversely affect the Company’s business activities, business prospects, and financial performance.
- Risk of Macro and Global Economic Conditions
In this era of globalization, global economic conditions have significant influence on Indonesian economy also against domestic companies, including the Company. Either directly or indirectly, conducive or not, the global economy will have significant impact on the Company’s business activities, business prospects and financial performance.
- Risk of Lawsuit or Claim
In conducting its business activities, there is possibility that the Company may be involved in a legal process. The risk of lawsuit or claim could have adverse impact to the Company, both on financial and reputation. In addition, the uncertainty of the outcome of the process can also disrupt the Company’s performance.
- Risk of Foreign Country Provisions or International Regulations
As a company that is also exporting, the Company should continue to follow regulations applicable in other countries. If the Company fails to comply with the regulations imposed by export destination or international regulations, this could adversely affect the its business activities, business prospect, and financial performance.
Risk for Investors
- The non-Liquidity Risk of the Offered Stock on the Initial Public Offering
After the Company listed its shares on the IDX, there is no guarantee that the market for the Company’s traded shares will be active or liquid, since there is possibility that majority of the shareholders will not trade their shares in the secondary market. In addition, compared to capital markets in more developed countries, capital market in Indonesia is illiquid and has different reporting standards. Prices in the Indonesia capital market also tend to be more volatile compared with other capital market. Thus, the Company can’t predict whether the Company’s shares liquidity could be maintained.
- Risk of The Company’s share price fluctuation
After the Company’s shares Initial Public Offering, shares price will be fully determined by investors’ supply and demand level in the IDX. The Company can’t predict share price fluctuation level after the Company’s Initial Public Offering. Here are some factors that may affect the Company’s stock price movement after the Initial Public Offering:
Sale of the Company’s shares on substantial amount in the future on the market or perception the sale may occur, may adversely affect market price of the shares or on its ability to raise capital through additional public offering or equity securities. This may result in the Company’s share price declining and complicate the capital addition process of the Company.
- Difference between actual performance and investor’s expectations
- Changes in recommendation by analysts
- Changes in Indonesia’s economic conditions
- Changes in Indonesia’s politic conditions
- Sale of shares by the majority shareholder of the Company or other shareholders with significant ownership; and
- Other factors that may affect the Company’s financial performance and business prospect.
- Risk of Dividend Policy
Dividend distribution will be proceeded according to GMS by referring to the Company’s financial performance and considering the Company’s revenue, cash flow, working capital, and capital expenditures in the future. The funding needs for future business expansion plan as well as risk of losses recorded in the consolidated financial statements may be the reasons affecting the Company’s decision to not distribute dividends.
To achieve purpose and objectives of the Company, the Company is fully aware on the importance of risk management to the risks mentioned above. Therefore, the Company has implemented risk management to mitigate potential negative impacts. The information on risk management applied by the Company has been disclosed in VIII. Description of the Company, Business Activities, Trends and Prospects.