Page 135 - ar2012

Notes to the Financial Statements
For the fnancial year ended 31 December 2012
35. Financial risk management objectives and policies (cont’d)
(b) Foreign currency risk
The Group’s reporting currency is the Indonesian Rupiah. The Group faces foreign exchange risk as its borrowings, export
sales and the costs of certain key purchases which are either denominated in the United States dollars or whose price is
signifcantly infuenced by their benchmark price movements in foreign currencies (mainly US Dollar) as quoted on international
markets. To the extent that the revenue and purchases of the Group are denominated in currencies other than Indonesian
Rupiah, and are not evenly matched in terms of quantum and/or timing, the Group has exposure to foreign currency risk.
The Group does not have any formal hedging policy for foreign exchange exposure. However, in relation to the matters
discussed in the preceding paragraph, the fuctuations in the exchange rates between Indonesian Rupiah and United States
Dollar provide some degree of natural hedge for the Group’s foreign exchange exposure.
As at 31 December 2012, had the exchange rate of Rupiah against US Dollar depreciated/appreciated by 10% (2011: 10%)
with all other variables held constant, proft before tax for the year ended 31 December 2012 would have been Rp60.0 billion
(2011: Rp64.5 billion) lower/higher, mainly as a result of foreign exchanges gains/losses on the translation of cash and cash
equivalents, trade receivables, interest-bearing loans and borrowings and trade payables denominated in US Dollar.
(c) Commodity price risk
Commodity price risk is the risk that the fair value or future cash fows of the Group’s fnancial instrument will fuctuate
because of changes in market prices. The Group is exposed to commodity price risk due to certain factors, such as weather,
government policy, level of demand and supply in the market and the global economic environment. Such exposure mainly
arises from its purchase of CPO where the proft margin on sale of its fnished products may be affected if the cost of CPO
(which is the main raw material used in the refnery plants to manufacture cooking oils and fats products) increases and the
Group is unable to pass such cost increases to its customers. In addition, the Group is also subject to fuctuations in the selling
price of its manufactured CNO and the purchase price of copra (being the raw material used in the manufacture of CNO).
The Group has future commodity contracts with several foreign entities, the purpose of which are primarily to hedge its exposures
on risks of losses arising from the fuctuations in the prices of the commodities that are produced and traded by the Group.
During 2012 and 2011, it is, and has been, the Group’s policy that no hedging in fnancial instruments shall be undertaken.
The Group’s policy is to minimise the risks of its raw material costs arising from the fuctuations in the commodity prices by
increasing self-suffciency in CPO for the refnery operations (through the purchase of CPO from the Group’s own plantations).
To the extent it is unable to do so, the Group may minimise such risks through forward contracts. As such, it may also
be exposed to commodity price risk as changes in fair value of future commodity contracts are recognised directly in the
consolidated statement of comprehensive income.
At 31 December 2012 and 2011, had the commodity prices been 10% higher/lower with all other variables held constant,
proft before tax in 2012 would have been Rp2.4 billion (2011: Rp4.0 billion) lower/higher, mainly as a result of higher/lower
quoted market prices of the open position future commodity contracts.
Indofood Agri Resources Ltd. • Annual Report 2012 133