Risk Management

In managing its business, the Company may face several risks that can be classified into two categories; Operational Risks and Financial Risks. In order to minimize the potential risks that could affect Company’s performance, the Company conducts various analyses to establish the risk management policies.

The risks that could potentially affect the Company’s business are as follows:

Operational Risks

  • Product contamination: As a food manufacturer, the Company may face the risk of product contamination that may occur while it is still in the form of raw materials, in the production process, and even during the distribution process to outlets and end users. To prevent contamination of the product, the Company implements Good Manufacturing Practice (GMP), Sanitation Standard Operating Procedure (SSOP), ISO 17025 (Testing Laboratory Accreditation Certificate – SNI), ISO 9001:2015 (Quality Management System) and FSSC 22000 and ISO 22000:2018 (Food Safety Management System).
  • Relatively short shelf life of the products: The Company’s products have a relatively short shelf life. To mitigate the risk, the Company continually reviews and improves the quality of the existing products.
  • Preservatives and halal issues: The Company complies to the National Agency of Drug and Food Control (NA-DFC) regulations and the applicable halal requirements. The Company also regularly educates public on Sari Roti’s production process through the Factory Visit Program.
  • The availability of raw materials: The availability of raw materials highly affects the Company’s production performance. To anticipate the risk of raw material unavailability, the Company adopts production planning and good inventory control and keeps on seeking for raw material substitutions and alternative suppliers.
  • Business competition: In a competitive environment, the Company continuously conducts product innovation and increases Customer satisfaction by providing high quality bread products at affordable prices.
  • The availability of energy supply: The availability of energy supply is the main factor that supports the Company’s operations. The Company has prepared other alternative energy to mitigate the risk of the scarcity of energy supplies.
  • Labor strike: As manpower is one of the Company’s valuable assets, the Company always maintains good care and good relationship between the Management and Employees. In daily operational activities, the Company ensures the occupational safety and health of employees in the Company. In managing labor strikes, the Company liaises with the government Labor Department and law enforcement authorities while ensuring product continuity.
  • Natural disasters: Natural disasters such as earthquakes, volcanoes, floods and other disasters are inevitable. All Company assets and operations are covered by insurance to protect from any natural disaster.

Financial Risks

  • Foreign currency risk: The Company faces foreign exchange risk as the costs of certain key purchases are affected by the movement of the foreign currencies. The Company maintains the transactions and balances in foreign currencies at the minimum level to minimize the foreign exchange exposure.
  • Commodity price risk: The risk of commodity price faced by the Company is mainly due to the purchase of raw materials that are affected by commodity price fluctuation and the level of demand and supply in the market. To minimize such risk, the Company maintaining the optimum inventory level of raw materials to ensure continuous production. In addition, the Company may seek to mitigate its risks by passing on the price increases to its customers.
  • Credit risk: The credit risk comes from the credit granted to its customers. To mitigate this risk, the Company implements the policies to ensure that sales of products are made only to credit-worthy customers with proven track record or good credit history. It is the Company’s policy that all customers who wish to trade on credit are subject to credit verification procedures. The Company also has policies that limit the amount of credit exposure to any particular customer, such as requiring distributors and agents to provide guarantee deposits. In addition, receivable balances are monitored on an ongoing basis to reduce the exposure to bad debts. Furthermore, the Company also exposed to credit risk arising from the funds placed in banks in the form of current accounts and time deposits. To mitigate this risk, the Company has a policy to place its funds only in banks that have good reputation.
  • Liquidity risk: The Company manages its liquidity profile to fund its capital expenditures and pay its maturing debts by maintaining sufficient cash and availability of funds. The Company regularly evaluates its projected and actual cash flow information and continuously monitors condition in the financial market.
  • Interest rate risks on fair values and cash flows The Company interest rate risk mainly arises from loans for working capital and investment purposes. Loans at variable rates expose the Company to fair value interest rate risk. There are no loans of the Company that bear interest at fixed rate.