In overcoming the challenges of marketing and communications industry, FORU puts forward the management principle of risk management based on risk aversion, risk transfer, reduction of risk negative effects of and gathering of some or all of the consequences of a particular risk.
Risk management is implemented through systematic, integrated, optimized and sustainable management procedures. Procedures for the implementation of risk management are started from a risk identification process, which aims to identify the various risk factors that may arise and hamper the operational and managerial processes of the company. The next step is controlling the risk, which is reflected in the implementation of risk management. FORU made various efforts required to minimize the probability of risks occurrence and improvement effort that reflects the restoration act in tackling the negative implications of those risks. Risk control efforts are always conducted and improved to prevent a significant decline in the value of the company while maintaining competitiveness in the midst of marketing and communications industry.
Company Risk Identification
In a meeting with the Board of Commissioners and/or the Division of Internal Audit and the Audit Committee, there were relevant discussions of business risks and risk mitigation. These risks are business risks that are material and have an impact on company performance. As for some of the risks identified in 2012 are as follows:
Credit risk occurs when the debtor does not fulfill its liabilities in consumer contracts, which led to financial losses. FORU manages the credit risk of customers by conducting prudent credit analysis and approval, and also monitoring the outstanding amounts continuously to minimize bad debts. FORU only conducts business with recognized and credible third parties. The Company has policy for all customers who wish to trade on credit terms then they should perform credit verification procedures. In addition, the amount of receivables is monitored continuously to reduce the risk of impairment of receivables.
Market risk occurs when the fair value of future cash flows from one financial instrument will fluctuate because of changes in market prices. The Company is affected by market risk, primarily by the interest rate risk.
a. Foreign Currency Exchange Risk
Foreign currency exchange risk is the risk in terms of fair value or future cash flows from one financial instrument due to changes in exchange rates of foreign currencies. The Group is exposed to the risk of foreign currency exchange rates, which mainly arise from assets/liabilities of net monetary that are different from the functional currency of FORU. FORU closely monitors the fluctuations of foreign currency exchange rates so as to take the most beneficial step at the right time.
b. Interest Rate Risk
Interest rate risk is the risk in terms of fair value or future cash flows from one financial instrument that fluctuates due to changes in market interest rates. The effect of changes in market interest rate risk is associated with loans from FORU that bears floating interest rate. FORU closely monitors fluctuations in market interest rates and market expectations so that they can take the most profitable measures in a timely manner. Management does not consider the need for any interest rate swap at this time.
Liquidity risk is the risk in terms of FORU could not meet the maturing liabilities. Management evaluating and monitoring cash flows (cash-in) and cash outflow (cash-out) to ensure the availability of funds to meet the payment needs of maturing liabilities. In general, the need to repay the maturing short-term and long-term liabilities derived from sales to customers.
Capital Management Risk
FORU is faced with the capital risk to ensure that it will be able to continue its business sustainability, in addition to maximizing the profits of the shareholders, through the optimization of the debt and equity balance. FORU capital structure consists of debt, which includes loans and equity owners of the parent entity, comprising of issued capital, retained earnings and other equity components.
FORU directors periodically perform a detailed review of FORU capital structure. One aspect of this review is a study by the Directors of the cost of capital, and associated risks. FORU as the parent entity manages this risk by monitoring the ratio of debt to equity. FORU manages the capital structure and makes adjustments based on changes in economic conditions to maintain and adjust the capital structure. FORU may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. There is no change in the objectives, policies and processes in the year ended December 31, 2012 and 2011.