EN | ID

Risk of Management

Main Risks With Significant Influence on the Company's Business Continuity


Risk of CPO market price fluctuation

The selling price of palm oil products and their derivative products is strongly influenced by international and domestic market prices, where price fluctuations are influenced by a number of factors beyond the control of the Company, such as the following:

  1. The level of world production and consumption of CPO products and their derivatives, as well as substitute vegetable oils or other competitors.
  2. Level of international and domestic supply of CPO products and their derivatives, as well as substitute vegetable oils or other competitors.
  3. Taxes and duty rates.
  4. Government policies and programs.
  5. Weather State
  6. The world economy in general.

Any significant fluctuation in the market price of CPO will affect the price of the Company's products, which may have a negative impact on the business activities, financial condition, performance, and business prospects of the Company and its Subsidiaries.

Risk Management

The Company cannot avoid the risk due to price fluctuations that occur in the international market for CPO commodities and their derivatives. The company will try to mitigate price fluctuations with efficient and effective cost control through mechanization and appropriate and measurable use of resources. In addition, the Company will hedge CPO on the Kuala Lumpur Derivative Exchange.

Risk of bad weather conditions

The productivity of fresh fruit bunches is highly dependent on the weather conditions in Indonesia. Rainfall that is too high or dry season that is too long will cause a decrease in overall plantation productivity/a decrease in FFB yields from the Company's suppliers. Too much rainfall will cause poor pollination of plants and a decrease in the effectiveness of fertilization, while drought results in reduced fruit bunches and lower oil extraction rates. Very high levels of drought can also cause fires on plantation land.

Historically, CPO prices will usually increase when supply decreases due to the impact of weather conditions so that in the end will reduce the negative impact of lower production levels, this can have a negative impact on activities business, financial condition, performance, and business prospects of the Company and its Subsidiaries.

Risk Management

The Company seeks to mitigate this risk by actively monitoring weather changes and making weather predictions. In addition, the company has built many fire towers to monitor fires. The company also ensures that all ditches are washed 1-2 times a year to reduce the risk of flooding.

Risk of pest attack

Inadequate oil palm cultivation procedures can cause the fresh fruit bunches of the Company and its Subsidiaries to be very vulnerable to pests and diseases such as insect pests, rats, viruses, ganoderma fungi and pests. These can infect oil palm FFB so that the oil palm plants die and or decrease in quality.

If this happens, the harvested area of ​​the Company and its Subsidiaries will decrease and productivity will also decrease. Moreover, the Company and its Subsidiaries also need to implement additional procedures to eradicate these pests and will incur additional costs for the Subsidiaries.

If the Subsidiary Company is unable to handle or minimize pest attacks, it can have a negative impact on the business activities, financial condition, performance, and business prospects of the Company and its Subsidiaries.

Risk Management
The Company has taken the following steps to reduce risk:
  1. perform early detection (Early warning System) for all pests and diseases.
  2. build a Gopon cage with a ratio of 1 unit for 10 ha in anticipation of rat pests that attack young plants to old plants.
  3. cultivating beneficial plants on Main Road and Collection Road with a ratio of 60% Casia Cobanensis, 20% Antogonon and 20% Tunera Subulata to anticipate palm leaf-eating pests .
  4. Ganoderma (Base Rot Disease) found in the garden can only be isolated from a trench with a depth of 60 cm and a width of 40 cm with a radius of 2 meters from the trunk to prevent spread.
Risk of COVID-19 Virus Pandemic

The spread of the Covid-19 Virus pandemic that has been going on since the end of 2019 has become a major challenge for most industries globally. To anticipate the spread of the Covid-19 virus, various countries have adopted lockdown policies and limited import activities of various commodities, including CPO. So that Indonesia's palm oil exports experienced a significant contraction.

If the pandemic lasts for a long time so that it continues to affect the demand and prices of the Company's and Subsidiaries' products, then this may have a negative impact on business activities, financial condition, performance and prospects the Company's and Subsidiaries' businesses.

Risk Management
The Company's measures to mitigate the risk of Covid-19 in the STA Resources Plantation and Factory operational unit:
  1. Implementing the 5M health protocol (prokes) for every employee, especially while in the work area to break the chain of Covid-19 spread, namely:
    1. wear a mask
    2. washing hands with soap or hand sanitizer
    3. keep your distance
    4. avoiding the crowd
    5. reduced mobility
  2. Conducting Covid-19 vaccination to all employees
  3. Preparing an isolation house for each unit of the Garden and Factory
  4. Provide medicines and vitamins for employees infected with Covid-19 before handling the situation is handled by the state / government.
  5. Constantly monitor and update the development of information about Covid-19 in the Company's operational areas
  6. Forming a Covid-19 handling team in the workplace consisting of Unit Leaders, HR, K3 teams and health workers
  7. The Covid-19 handling team provides policies and procedures for workers to report any suspected cases of Covid-19 (symptoms of fever/cough/runny nose/throat pain/shortness of breath) for monitoring by the health worker
  8. Intensively educate all workers to provide the correct understanding regarding the Covid-19 pandemic, so that workers gain knowledge to independently take preventive and promotive actions to prevent disease transmission, as well as reduce excessive anxiety due to incorrect information.
Risk of Business Competition

Indonesia has many companies producing similar products. As a commodity product, the price of CPO is determined by the international market price which is also used for domestic sales. As a producer whose products are currently marketed both domestically and abroad, the Company faces competition at home and abroad from companies that also produce similar products or substitute products that may affect the market conditions of their products. If the supply of products increases beyond the level of demand or the selling price of substitute products becomes more competitive, the selling price may also decrease, thereby reducing the Company's profit level.

The palm oil industry also competes with other vegetable oils in the biofuel segment because most biofuels are produced from vegetable oils including palm oil, rapeseed oil and soybean oil. Palm oil is a vegetable oil that is not too expensive when compared to other vegetable oils, where most other vegetable oils demand a significant premium over the price of palm oil. these other vegetable oils as an alternative to palm oil in biofuel production, resulting in a decrease in demand and prices for palm oil.

Risk Management
The Company cannot prevent price declines from occurring, but to minimize this risk, the Company takes several policy steps, namely:
  1. Conducting a Long Term Contract with several key players with a price formula that has been mutually agreed upon, namely taking the highest KPBN tender price, so that the price discount factor from buyers does not occur during peak crop times.
  2. Selling local forward CPO for a month, two months or if possible in the next three months to anticipate price declines that are predicted to occur in the following months.
  3. Selling CPO to the export market with a larger portion than the local portion if the export price of CPO is higher than the local price, and vice versa.
To face competition at home and abroad from companies that also produce similar products, the steps taken by the Company are:
  1. Producing CPO products with good quality and sustainable and traceable to the mill so that it creates trust in the eyes of buyers for the products we produce.
  2. The accuracy of product delivery as agreed in the contract is one of the positive sides in the eyes of the buyer.
  3. Maximum service for any complaints or information requested by buyers by all related teams.
Negative Campaign Risk

Negative campaigns related to environmental impacts, sustainability principles, and social conflicts caused by carbon emissions from CPO production are still intensively carried out by several international organizations. In the campaign, CPO is considered as the main cause of the phenomena of global warming, illegal logging, and climate change. These negative campaign practices can lead to a decrease in global demand for CPO and may have a negative impact on the business activities, financial condition and performance of the Company and its Subsidiaries.

Risk Management

To anticipate this risk, the Company has formed an ESG committee which is responsible for maintaining a balance between the interests of society, the environment, and sustainable economic profitability. The Company implements efficient practices through conservation of biodiversity, soil and water, and ensures safe and stable conditions for all employees and the surrounding community. The company protects forests, peatlands, human rights and cooperates with farmers, non-governmental organizations and other stakeholders to implement sustainability principles.

Risk of changes in foreign exchange rates

Although the Company uses Rupiah as its functional currency and financial reporting, the selling price of CPO is correlated with foreign exchange rates, especially USD. Fluctuations in the exchange rate of the Rupiah against foreign currencies can affect profit margins which in turn can have a negative impact on the financial performance of the Company and its Subsidiaries.

Risk Management

To reduce the risk of foreign exchange rates, the Company always hedges the exchange rate when exporting CPO. The Company also avoids bank loans in USD