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Risk Management

Overview of The Company’s Risk Management System

Risk management system is an integrated part of GCG which aims to minimize the potential risk of negative events and to maximize the probability of positive events.

The Company manages all risks effectively and efficiently and to ensure business growth sustainability by managing risks proactively, focus on the most important risks, and be carried out in a coordinated and integrated manner. In carrying out risk management, the Company always innovates to find more effective and efficient ways.

The Company’s risk management framework refers to best practices, including through the following actions:

  1. Identifying risks carried out by each part of the Company.
  2. Analyzing impact and risk mitigation activities to be poured into the SOP.
  3. Monitoring the implementation of SOPs and examine the adequacy of SOPs.

Monitoring of risk management system is carried out by Audit Committee assisted by Internal Audit Unit which is responsible to ensure that risk managment activities have been implemented effectively in providing reasonable guarantees for the achievement of organizational goals. Audit Committee discusses the risks faced by the Company and responses to these risks in Audit Committee periodic meeting.

Types of Risks and Its Management

In managing risk, the Company must provide up-to-date and objective information to all management levels in order to be able to identify and mitigate risks and to determine strategic steps. The Company identified several risk profiles, but not limited to the potential risks that might arise in the future. Risk management policy is reviewed regularly according to changes in the Company’s business conditions and other factors.

The Company’s main risks related to its operational activities and mitigation are as follows:

Risk of Covid-19 Pandemic

The Covid-19 pandemic, which began to spread in Indonesia since March 2020, has caused disruptions in health, social and economic aspects given the very high risk of transmission that can cause serious health problems.

In order to suppress the spread of the virus, the government implemented restrictions that reduce social interactions and activities which also have an impact on business activities.

The Company is in an industry that is allowed to continue operating during the restriction period. To ensure that operational activities can run well, the Company maintains the level of availability of raw materials and carries out production and distribution processes with health handling measures.

To mitigate this risk, the Company always adheres to the health protocols set by the government and applies transmission prevention guidelines for all employees.

Risk of Raw Material Availability

The Company uses the main raw materials in the form of natural ingredients (herbs) obtained from farmers or suppliers. If there is a change in weather and unfriendly natural conditions as well as seasonal risks affect the availability of these raw materials and affect the sustainability of the Company’s production process.

In addition to the sustainability of the production process, the availability of raw materials also affects production costs. Scarcity of raw materials can increase the price of these raw materials. In addition to the increase in production costs due to the high price of raw materials, the scarcity of raw materials also has the potential to increase the Company’s operational costs because it must look for alternative sources of raw materials supply.

To mitigate this risk, the Company implements a policy of inventory levels and merchandise orders that are tailored to the demand and lead time for each type of product and always maintains good relations with all stakeholders, including a number of suppliers of the Company’s raw materials. In addition, the Company is also promoting the cultivation of vital raw material plants by utilizing modern technology and by cooperating with farmers.

Risk of Business Competition

The promising growth and prospect of traditional medicine industry encourage business players to continue to innovate the best products. Business competition is becoming increasingly competitive because competitors are trying to create products that are similar to the Company’s flagship products that have become market leaders, such as Tolak Angin, Tolak Linu, and KukuBima Ener-G!. Several competitors have even demonstrated the competitiveness of their products against the Company’s products through the taglines displayed in their advertisements. This shows that the competition in herbal medicine industry is increasingly competitive.

In the global market, the Company also has to compete with traditional medicinal products developed by export destination countries, such as ginseng as a traditional medicine from Korea. In addition, the Company also has to compete with the pure pharmaceutical industry to be able to seize market share for medicinal products which requires more effort considering the public’s mind-set towards traditional medicine is not yet fully appreciative.

To mitigate this risk, the Company always improves services to consumers and maintains good relations with each agent/ distributor and consumers. Furthermore, the Company also continues to innovate in product development and to maintain consistency in the selection and use of the right raw materials, in terms of type, quantity and quality, so as to produce flagship herbal medicines and other products to be able to face the increasingly competitive business competition.

Risk of Distribution Network and Supply Chain

Most of the Company’s products are distributed through wholesalers, supermarkets, agents, stalls, and retail traders throughout Indonesia. Disruption of downstream distribution chain can affect the sales of the Company’s products.

To mitigate this risk, the Company cooperates with all agents/distributors in terms of providing input regarding consumer preferences for types, models and product packaging.

Risk of Marketing Campaign Failure

In carrying out marketing activities, the Company regularly places advertisements in the mass media, one of which is television. If the marketing activities are not successful, it can result in financial losses and have an impact on the Company’s business activities.

To mitigate this risk, the Company always carefully compiles concepts, themes, selects talents and media and the right timing to conduct marketing campaigns according to the characters of the products and their target markets.

Risk of Machine and Equipment Damage

Damage to factory machines used in production process can disrupt the smooth running of the Company’s production activities which can result in a decrease in production performance so that it will affect the achievement of the Company’s production targets.

To mitigate this risk, the Company performs predictive maintenance and routine replacement of spare parts for machinery and production equipment so that in the event of a breakdown, it can be anticipated as soon as possible. In several important areas, the Company always prepares spare capacity.

Risk of Damaged Products and Product Withdrawal from the Market

The disruption of the production system allows the occurrence of finished products that are not in accordance with the Company’s production standards. This risk can occur due to inaccuracies starting from the procurement of raw materials to the packaging process. Considering that the products are closely related to health problems and medical treatment for health, to avoid the risk of these damaged products, the Company must withdraw the products circulating in the market if these products experience the following incidents:

  • Products that cause injury, illness, or other side effects.
  • Contaminated products, damaged products, or other counterfeit products.
  • There is a lawsuit if consumers feel aggrieved and have health problems as a result of using the Company’s products.

Withdrawal of products from the market can result in significant losses, damage to inventory and loss of product sales opportunities due to product unavailability within a certain period of time.

To mitigate this risk, the Company continuously conducts quality monitoring and testing and always stores samples from each production batch for 3 years.

Risk of Human Resources

Human resources (HR), both senior management and trained operational employees, are one of the factors that need to be maintained by the Company in order to continue of the Company’s production and operational activities. Lack of qualified HR may affect the Company’s business activities, results of operations and prospects. The Company also relies on its ability to find and retain qualified HR in order to continue the growth and success of the Company’s business.

To mitigate this risk, the Company conducts recruitment to meet HR needs and regularly provides training/competency development programs to maintain and to improve the skills of the existing HR. The Company also carries out regeneration and promotion on an ongoing basis and implements a fair and open performance appraisal system as a basis for rewarding employee performance.

Risk of Strike

To support its business activities and production processes, the Company requires a large number of manpower. In the event of a mass strike, it will disrupt the production process which may result in non-fulfilment of the Company’s production targets.

To mitigate this risk, the Company always maintains good industrial relations, and pays attention to employee welfare by providing employee rights both in financial and non-financial forms as stipulated in the Collective Labor Agreement (PKB).

Risk of Natural Disasters and Fires

Natural disasters and fires are unpredictable risk. If this happens, raw materials, factory machinery and production facilities may experience disruption or damage, thereby disrupting the production process and affecting the Company’s financial performance.

To mitigate this risk, the Company designs factories and infrastructure facilities in such a way as to take into account various aspects of disasters and emergencies. In addition, the Company also insures its buildings and factory facilities with insurance whose types and amounts insured are reviewed periodically to anticipate changes that occur so that losses which may arise can be properly covered.

Evaluation of The Effectiveness of Risk Management System

Evaluation of the effectiveness of risk management is carried out by the Internal Audit Unit. The evaluation is carried out by reviewing the implementation of SOPs/policies that regulate related activities. SOPs/policies will continue to be developed so that the impact on risk can be minimized.