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Net cash flows used in investing activities for the year ended on December 31, 2014 amounted to Rp113,045,755,066. Cash flows provided by investing activities were generated from disposal of fixed
assets amounting to Rp29,341,546,599. Cash flows used in investing activities were used for acquisition of fixed assets amounting to Rp102,242,573,593, acquisition of other assets amounting to
Rp2,582,803,591, and payment of advances to purchase fixed assets amounting to Rp37,561,924,441.
Net cash provided by financing activities
Net cash flows from financing activities for the year ended on December 31, 2016 amounting to Rp160,129,156,292. Cash flows from financing activities were generated from addition of bank loans and
non-bank financial institution loans amounting to Rp2,047,335,308,620 and additional paid-in capital amounting to Rp90,500,000,000, addition of lease payables of Rp3,169,896,192, and addition of other
payables amounting to Rp58,713,981,254. Cash flows used in financing activities consisted of payment of bank loans and non-bank financial institution loans amounting to Rp2,011,273,248,985, payment of
lease payables amounting to Rp11,624,7334,676, and divestment by non-controlling interest amounting to Rp16,692,046,113.
Net cash flows from financing activities for the year ended on December 31, 2015 amounted to Rp296,250,030,831. Cash flows provided by financing activities were generated from payment of bank
loans and non-bank financial institution loans amounting to Rp1,473,867,038,596, additional paid-in capital from non-controlling interest amounting to Rp20,112,000,000. Cash flows used in financing
activities consisted of payment of bank loans and non-bank financial institution loans amounting to Rp1,146,954,528,710, payment of lease payables amounting to Rp18,394,852,126, and payment of
other payables amounting to Rp32,379,629,929.
Net cash flows from financing activities for the year ended on December 31, 2014 amounted to Rp113,380,564,656. Cash flows provided by financing activities were generated from payment of bank
loans and non-bank financial institution loans amounting to Rp867,031,483,997, addition of other payables amounting to Rp38,857,394,607, additional paid-in capital amounting to Rp95,000,000,000,
and additional paid-in capital from non-controlling interest amounting to Rp9,054,500,000. Cash flows used in financing activities consisted of payment of bank loans and non-bank financial institution loans
amounting to Rp879,788,730,499, and payment of lease payables amounting to Rp16,774,083,449.
V. CAPITAL EXPENDITURES
The Group spent approximately Rp135,951 billion in 2014, Rp261,867 billion in 2015 and Rp106,460 billion in 2016 on capital expenditures, which are detailed below:
2014 2015
2016
Rp million Rp million
Rp million Manufacturing
120,777 88.8
204,658 78.2
80,189 75.6
Forest Concession 14,634
10.8 18,407
7.0 7,237
6.8 Retail and Distribution
540 0.4
38,802 14.8
18,614 17.6
Total Capital Expenditures 135,951
100.0 261,867
100.0 106,040
100.0
Source: The Company’s Audited Consolidated Financial Statements as of December 31, 2016, 2015 and 2014, and estimates prepared by the Company’s management.
The capital expenditures of the Group from 2014 to 2016 were mainly utilized to increase production capacity of the furniture manufacturing facility from 17,763 m
3
in 2014 to 35,044 m
3
in 2016, as well as the production capacity of the building component manufacturing facility from 17,558 m3 in 2014 to
133,338 m
3
in 2016. Additional production capacity in the furniture manufacturing facility mainly resulted
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from the construction of a new factory owned by Interkraft to replace its previous factory that was lost in a fire in 2014. In addition, the Company also increased the production capacity of its building component
manufacturing facility due to the high demand for building component from customers.
Capital expenditures for the retail and distribution segments had increased significantly in 2015 and 2016 as a result of the construction of Thema Home, the Company’s first retail store, and the warehouse for
furniture under the brand THEMA to be sold in Indonesia.
The Company does not have specific commitment for the procurement of capital goods investments of material value in the future.
VI. RISK MANAGEMENT
The Company is committed to implementing proper risk management to its business in order to maintain its current performance. The Company understands that risks are an inherent part of the Company’s
operations, including risks that are beyond the Company’s control. Therefore, such risks need to be managed in an integrated and sustainable manner as part of a good corporate governance framework.
As part of the Company’s commitment to implement risk management, the Company has established an Internal Audit Unit the IAU, which reports directly to the President Director. The establishment of the
Internal Audit Unit is one of the early steps taken by the management towards implementing an integrated risk management framework in the future.
In addition, some of the management initiatives implemented by the Company in the past few years are as follows:
-
To mitigate against the risk of government regulations, the Company endeavors to anticipate the possibility of changes in regulations by adjusting the Company’s internal policies to comply with the
prevailing regulations and by setting policies that minimize the impacts of unfavorable external conditions. The Company will continue to maintain its FSC and SVLK certifications and produce its
wooden products in an environmentally friendly manner to comply with the rules and regulations relating to wooden and forestry products that are applicable in the US, EU and other countries at all
times.
-
To mitigate against the risk of fluctuations in foreign exchange rates, the Company continuously endeavors to monitor such fluctuation and adjust the Group’s financial projection to anticipate the
possible negative impacts of fluctuations in foreign exchange rates to the Group. A portion of the Company’s bank loans is also denominated in foreign currency which serves as an in-built hedging
mechanism for the Company.
-
To mitigate against the interest rate risk for loans, primarily loans for working capital and investment purposes that have various variable interest rates, the management reviews the various interest
rates offered by creditors to obtain favorable interest rates before making a decision to engage in debt agreement.
-
To mitigate against the risk of availability of raw materials, the Company maintains its raw material inventory at a level that is sufficient for in accordance with the Company’s production requirements.
By purchasing raw materials in large quantities, the Company is able to select wooden raw materials with the best quality, thus enabling the Company to produce premium products for its customers. In
addition, to anticipate bad weather condition that may affect the transportation of raw materials, the Company has built saw mills used for sawing timber logs within close proximity of the concession
forest. Therefore, the sawn timber can be transported by land as well as by the river.
-
To mitigate against the risk of fire in production facilities, the Company actively monitors, maintains and improves its operating efficiency and minimizes the environmental impacts of its operations and
maintains proper health and safety standards. The Group has adequate insurance policies for the protection of the Company’s production facilities from fire incidents. In addition, the Company also
46
conducts proper training to its employees fire safety, and proper fire response facilities and training. The Group has designed its buildings in a manner which minimizes the risk of fire spreading to the
entire production facilities, namely, by assigning a 10-meter distance between factory buildings, as well as using non-flammable lights and installing sprinklers in all factory buildings.
-
To mitigate against the risk of regional minimum wage increase, the Company prepares a projection of wage increase and determines the right strategies to minimize the impact of wage increase
following the issuance of Government Regulation No. 78 of 2015 on Remuneration, which regulates the formula to determine annual wage increase. In addition, the Company has relocated Intercraft’s
production facility to a bigger facility in Lamongan, East Java, which has a regional minimum wage which is lower than Sidoarjo.
-
To mitigate against the risk of reliance on main customers, the Group maintains long-term good relationships with its main customers. The Group endeavors to satisfy qualifications and requests of
the main customers by ensuring the quality of all of it’s products through the implementation of proper Standard Operating Procedures and Quality Assurance.
-
To mitigate against the risk of business competition, the Company continues to endeavors to improve its product quality, expand its distribution network and maintain a competitive price edge in
the market. Through such measures, the Company hopes to maintain the loyalty of its customers, and thereby maintain and improve its financial performance from year to year.
In addition, after its conversion into a public company, the Company will comply with OJK and IDX regulations by implementing procedures such as the appointment of Independent Commissioners,
establishment of an Audit Committee, and other procedures to protect the interests of minority shareholders.
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VI. RISK FACTORS
An investment in the Company’s shares involves risks. Before making an investment decision in the Offering Shares by the Company in this Initial Public Offering, prospective investors are warned that
these risks may involve the Company, the environment in which it operates, the Company’s shares and general social, economic, political and regulatory conditions in Indonesia. Therefore, prospective
investors are expected to read, understand, and consider all information presented in this Prospectus, including information related to the Company’s business risk exposures in carrying out its business
activities, before making an investment decision. All business and general risks presented in this Prospectus may have a material and negative impact on the Company’s business activities, cash flows,
operating performance, financial performance or prospects, and may have a direct impact on the Company’s share price, which may result in potential investors losing all or part of their investment.
Business and general risks which are not yet known to the Company or those deemed immaterial may also affect the Company’s business activities, cash flows, operating performance, financial performance
or prospects.
The following discussion on business risks contains forward-looking statements which relate to events and financial performance in the future. In general, an investment in the securities of companies based in
developing countries such as Indonesia involve risks that do not generally apply to an investment in securities of companies based in developed countries. Any changes in the global economic, social and
political conditions may put downward pressures on the trading price and value of the Company’s shares and expose investors to risk of loss on investments.
The main and general risks described in the following discussion are risks that are material to the Company. These risks have been prepared in order of the significance of their impact to the Company’s
operating and financial performance, there is no assurance that risks that rank lower in significance of impact will not have material adverse effects on the Company’s business activities, cash flows,
operational performance, financial performance or business prospects.
6.1. RISKS WITH SIGNIFICANT IMPACT TO THE COMPANY’S BUSINESS SUSTAINABILITY
