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" Strengthening harmonious business continuity through harmonious collaboration, we are able to create a favorable business climate so that various initiatives and business strategies can be implemented as planned."

RISK MANAGEMENT


The Company has overall responsibility for the establishment and oversight of the risk management framework. The Board of Directors has determined that the risk management function is responsible for developing and monitoring the Company's risk management policies.

The objective of risk management is to identify and analyze the risks faced by the Company, establish appropriate risk limits on risk and controls, and overseeing the risks and adherence to limits that have been set without unduly affecting the competitiveness and flexibility of the Company.

The Company's business can not be separated from the various business risks which are affected by both internal and external factors. The Company has identified several risks that could affect the Company's business operations during the year 2014, namely:

Commodity Price Risk

Commodities being traded in the international market are affected by supply and demand, effecting selling price fluctuations. The Company's revenues depend on selling prices of Crude Palm Oil (CPO) and Palm Kernel (PK), both controlled by the international market. To address these risks the Company analyzes and provides added value in every business process to produce Crude Palm Oil (CPO) and Palm Kernel (PK) at high quality and cost efficiently.

Legal Risk

The assurance on land ownership and title is a significant factor in the plantation industry. Failure in achieving extension periods for HGU; loss of land management license in location permits, and demand for location permits and HGU are some of ther risks faced by the Company. In order to solve these risks, the Company studies and complies with the applicable regulations in terms of administration and requirements for licensing and land documentation. Conducting dissemination to the communities by involving regional governments and related parties helps define the process.

Financial Risk

A financial risks affecting the Company's performance is the risk of fluctuations in foreign currency rates, as the Company conducts transactions in foreign currencies and has financial assets and liabilities denominated in foreign currencies. The Company controls financial risks by assessing and monitoring movements of foreign currencies against the Rupiah and reporting finances and cash flows of the Company, both for income and expenses of the Company, in order to perform an efficient operational programs.

Market Risk

The market risk which affects the Company is foreign currency risk, in which the Company conducts transactions with foreign currencies and owns assets and financial liabilities which are denominated in foreign currencies. The Company manages market risk through assessing and monitoring foreign currency movement against the Company's financial report and cash flow, both against revenues and expenses.

Operational Risk

Operational risk is a risk of loss caused by the inadequacy or failure from internal processes, human and systemic factors or from external events. This risk adheres to the Company's business process, operational activities, system and products. The Company, through supervisory functions implemented in the operational and management systems, conducts periodic and tiered reviews on operational activities to reduce the possibilities or frequency of operational risk events and minimizes the impact from such events.

Risks of Climate Change and Weather

The impact of shifting rainfall patterns, long droughts or high rainfall intensity and other extreme climate events may result in unfavorable conditions and lowered productivity of plants, ultimately affecting price and sales volume. To overcome this, plant needs conform to the implementation of fertilization and other agronomic treatments as adapted to the climatic conditions to achieve optimal productivity. In infrastructure development, one of the solutions conducted by the Company is to build and strengthen embankments in a cluster system to cope with flooding.