BUSINESS CONDUCTS & ETHICS

ETHICS AND INTEGRITY

 

To ensure long-term benefits in the application of GCG principles, the Management has implemented GCG as a standard which underpins all management and operational activities. This matter demands unyielding commitment from all elements in the Company so the principles of GCG are upheld with integrity. The Company has established a comprehensive framework of supporting instruments for GCG implementation which included the Code of Conduct, Corporate Policies and Standard Operating Procedures (SOP). The Code of Conduct serves as a basic guideline for all organs and individuals in the Company regarding actions and behaviors that conform to corporate values and culture as well as universal code of business ethics. The entire framework serves as a reference for all employees in the performance of their duties, authorities and responsibilities in accordance with their functions, thus ensuring that the objectives of the Company’s GCG implementation are achieved.

 

The series of instruments mentioned above are designed to help the Company adhere to the universal ode of good governance principles, which include transparency, accountability, independence, responsibilities and fairness. The Company’s commitment to the implementation of each principle is expressed as follows:

 

Transparency 
The principle of transparency is implemented to determine the decision-making process and present accurate and relevant material information in a manner that is easily accessible to shareholders and stakeholders. The Company also strives to disclose all matters required by existing laws and regulations. This principle is a manifestation of the attitude of forthrightness in the decision-making process and in disclosing material information in a timely and accurate manner. This openness is designed so that shareholders and stakeholders may obtain information about the Company without prejudice to applicable laws and regulations in accordance with GCG.

 

Accountability
The Company applies the principle of accountability in formulating the functions and responsibilities of each organ to ensure effective business management. The Company applies the principle of accountability by encouraging each individual and/or organ of the Company to realize his/her rights and obligations, duties and responsibilities and authorities. Therefore, every organ and employee of the Company must adhere to the business ethics and codes of conduct that are in effect.

 

Responsibility
The Company conducts its business vigilantly and prudently in respect to its professionalism and accordance with corporate policies, all applicable rules and regulations, and without interference from any party while at the same time striving to avoid any potential conflicts of interest. In addition, the Company also strives to comply with all existing laws and regulations as well as fulfill its corporate responsibilities toward the society and environment to ensure business continuity.

 

Independence 
The Company manages its business independently, without intervention from external parties. As such, all organs within the Company are obligated to carry out their respective functions and duties in accordance with the Company’s Articles of Association and the prevailing regulations while avoiding conflicts of interest as best as possible to achieve the objectives set forth in decision-making processes.

 

Fairness and Equality
This principle is to ensure fairness and equality in fulfilling the rights of shareholders and stakeholders in accordance with all prevailing rules as well as corporate policies.

CODE OF CONDUCT

 

With reference to Financial Services Authority Regulation No.33/POJK.04/2014 dated December 8, 2014 concerning the Board of Directors and Board of Commissioners of Public Listed Companies, the Company has drawn up a Code of Conduct that applies to all members of the Board of Directors and Board of Commissioners as well as all the employees of the Company.

 

The Company expects that all employees uphold the Company’s established code of conduct to:

grey dot  Instill company values that are consistent with global standards;

grey dot  Improve accountability and transparency on an ongoing basis;

grey dot  Consistently comply with all rules and regulations.

 

Based on the Code of Conduct, the employees are expected to:

grey dot  Avoid giving or receiving gifts to or from other parties;

grey dot  Avoid activities that may create a conflict of interest with the position and the person’s job;

grey dot  Protect sensitive information held by the Company.

 

Representing the Company’s stated regulations, the Code of Conduct shall be upheld by all employees without exception. The principles of good corporate governance that reflect transparency, accountability, responsibility, independence and fairness, are practiced as part of the Company’s commitment. In addition, the Code of Conduct is designed to uphold the rights of all stakeholders equally. The Code of Conduct also contains the values that serve as a guide for the Management Team, Board of Directors, Board of Commissioners and all the employees in realising the tasks and responsibilities of daily life. This extends to interactions with employees, shareholders, suppliers and other local officials.

 

Dissemination of the Code of Conduct

 

The Company disseminates the Code of Conduct to all employees at the beginning of every year. Each employee is required to sign a statement that they have read and understood the contents of the Code of Conduct, and receive sanctions if they violate these guidelines.

 

Implementation of the Code of Conduct
The Company will take disciplinary actions which may include dismissals if an employee is found in violation of the Code of Conduct. This is in accordance with the prerequisites set forth in the Company Regulations.

 

Corporate Culture

 

As an organisation, the Company has established a corporate culture that enforce ethical business practices. It is applied in order to provide guidance on the establishment and the actions of all employees as they carry out their duties and responsibilities. In an effort to ensure its application to be effective, the Company strives that it is deeply rooted in all employees, including management.

 

The concepts underlying the corporate culture which is promulgated by the Company are:

 

Integrity
The Company believes that employees with high integrity understand that synergies among all elements within the Company are critical to delivering the best services to the stakeholders.

 

Leadership
The Company asks its leaders to prioritise human resources management in its leadership. The Company believes that leadership can be attained via effort and hard work so that they can meet the expectations of all stakeholders.

RISK MANAGEMENT

 

The Company has adopted a comprehensive risk management system to safeguard the achievement of the Company’s strategic objectives and ensure the sustainability of the Company’s business.

 

Evaluation of The Effectiveness of The Risk Management System

 

The Company conducts periodic and thorough evaluation of the various risk categories, while taking measures to implement appropriate and effective supervision and to anticipate the potential impact of emerging risks.

 

The Board of Directors, Management Team, Risk Management Committee and other relevant managerial positions and functions have primary responsibility for identifying, analyzing and managing risks. Nevertheless, the Company strongly believes that instilling a risk culture throughout the organization is important, and therefore, employees, stakeholders and business partners play a role in ensuring that the risks are anticipated, monitored and dealt with effectively.

 

The Company’s approach to risk management is defined in the Enterprise Risk Management Framework, which presents the objectives, strategy, organization and governance, methodology, monitoring and reporting process for risk management. The main components of the framework are:

grey dot  Identification of risks, including risk awareness, measurement, monitoring and control.

grey dot  Risk management infrastructure, including the organizational structure, governance system,

    data collection, analytical methods, policies, procedures and reporting.

grey dot  The Corporate Culture, including training, performance measurement, development of values and rewards.

 

With this framework, the Company is able to identify and proactively manage risks in a number of strategic areas.

 

Risks Faced by the Company and Risk Management During Fiscal Year 2017

 

In 2017, identified business risks include, among others:

 

INVESTMENT RISK IN SUBSIDIARIES AND ASSOCIATES
The Company is a holding company which owns investments in subsidiaries and associates. Therefore, the Company has a level of dependency on the business activities and revenues of its subsidiaries and associates, and relies upon the distribution of profits, management fees and other payments from the aforementioned subsidiaries and associates to fund its obligations including liabilities and dividends.

 

Risk Mitigation
To mitigate investment risks, the Company and its business units place strategic investments in a diversified portfolio. The Company carefully and prudently balances the risks and returns as optimally as possible to minimize risks without reducing the value of its investment returns and conducts periodic reviews of the performances of investment as well as the performances of the company itself. This is done so that the Company may know the value of the investment and optimize the use of investment funds.

 

SOCIO-POLITICAL RISK
The Company’s and its business units’ activities form a part of the national financial industry and is affected by economic and socio-political conditions within the country. Thus, political instabilities which distort the general economic conditions can affect the Company’s performance and business. A stable economic and security conditions will boost investment, which will in turn ultimately boost economic growth, lower unemployment and increase people’s purchasing power.

 

Risk Mitigation
To overcome the socio-political risks, monetary policies which causes foreign exchange rate risks and interest rate change risks, the Company and its business units carefully and cautiously anticipates economic changes caused by social and political conditions both domestically and abroad, and by formulating policies and taking actions as necessary in developing its businesses and minimizing the impacts of unsustainable external conditions. In addition, the Company seeks to maintain its liquidity as optimally as possible and avoid sources of funds which may potentially exert a large influence in response to fluctuations or changes in monetary policy, including fluctuations in loan interest and foreign currency fluctuations.

 

FOREIGN EXCHANGE RATE RISK
The Company conducts certain transactions using foreign currencies, including capital expenditures, transactions conducted by business units abroad and loan transactions, which requires the Company to convert the Rupiah into certain foreign currencies, especially the US Dollar (USD) to meet the needs of the obligations at maturity. Fluctuations in exchange rates such as the USD against the Rupiah currency may impact the Company’s financial condition.

 

Risk Mitigation
The Company uses derivative financial instruments, mainly call spread options and swaps to reduce the risk of currency fluctuations.

 

INTEREST RATE RISK
The Company faces an inherent interest rate risk on loans primarily because it makes loans using floating rates. The Company monitors interest rate movements to minimize negative impacts to the Company.

 

Risk Mitigation
To mitigate interest rate risk, the Company monitors the impact of interest rate movements in order to minimize negative impacts to the Company.

 

BUSINESS COMPETITION RISK
The retail business, although necessitating a large amount of capital to operate, invites many new entrants to the sector to either place investments in the business itself or in business expansion as it promises a bright prospect. Although the government has set limits on foreign investment in retail, foreign retail companies are still making their way to the Indonesian market.

 

MPPA’s direct competitors are the supermarkets and other hypermarkets located in Indonesia. In addition, the widespread presence of minimarkets also form both direct and indirect competition to the MPPA’s retail business. MPPA’s supermarket / hypermarket also face indirect competition from traditional markets and other general stores on a smaller scale but which are spread across the country.

 

Competition in the department store industry is divided by lower, middle and upper consumer segments. Besides MDS, there are several other major players within the department store industry with different target market shares. MDS’s focus is on the middle class target market.

 

In the TMT business segment, IT industry in Indonesia is becoming more vigorous and potent. This condition continues to attract new players to enter the market and make the industry more competitive. The tightening competition necessitates all players to improve their services and continue innovating, so that only those with the best quality and innovative services will succeed in the market. In the provision of IT consulting services and IT-related services as well as equipment sales, competitors may offer more competitive rates and terms of payment as well as better services.

 

In the property business, NPI & MP face competitions from local developers in acquiring strategic locations, attracting tenant mix and providing good facilities.

 

Failure of the Company and its business units in anticipating such competition will result in the loss of existing customers to other companies that are more competitive in terms of price and quality of goods and services, and contribute to a decrease in the revenue of the Company its and business units.

 

Risk Mitigation
To overcome the risks of business competition, the Company, its subsidiaries and associates strive to always create innovations and new breakthroughs in their business operations to maintain their competitiveness.

 

RISK OF HUMAN RESOURCES
The Company relies on its human resources to provide the best service to consumers. The Company’s business activities involve professional and skilled workers in their respective fields, making them a valuable asset for the Company. However, the competition for competent human resources in the industry is quite high, whereupon the movement of employees from one company to another happens dynamically and rapidly. The Company must be able to retain its employees to ensure continued smooth operations of its businesses. Failure to retain and recruit qualified employees will adversely affect the Company’s operations, which may in turn may ultimately lower its earnings.

 

Risk Mitigation
To mitigate the risks of human resources, the Company and its business units strive to provide balanced policies that take into account both the interests of the Company and its employees, namely in the form of competitive salaries, bonuses / incentives, holiday allowances and health, as well as continually provide motivation, training, seminars and workshops for the Company’s existing and new staff to provide added value.