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INDOFOOD AGRI RESOURCES LTD
ANNUAL REPORT 2014
NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2014
34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group and the Company is exposed to financial risks arising from its operations and the use of financial instruments.
The key financial risks include interest rate risk, market risk (including currency risk and commodity price risk), credit
risk and liquidity risk. The Audit Committee provides independent oversight to the effectiveness of the risk management
process. It is, and has been throughout the current and previous financial year, the Group’s policy that no trading in
financial instruments shall be undertaken.
The following sections provide details regarding the Group and Company’s exposure to the above mentioned financial
risks and the objectives, policies and processes for the management of these risks.
There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures
the risks.
(a)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial
instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure
to interest rate risk mainly arises from loans and borrowings for working capital and investment purposes. There
are no loans and borrowings of the Group at fixed interest rates.
For working capital loans and borrowings, the Group may seek to mitigate its interest rate risk by passing it on
to its customers.
Sensitivity analysis for interest rate risk
As at 31 December 2014, had the interest rates of the loans and borrowings been 50 basis points higher/lower
(2013: 50 basis points higher/lower) with all other variables held constant, profit before tax for the year ended 31
December 2014 would have been Rp5.8 billion (2013: Rp4.2 billion) lower/higher accordingly, mainly as a result
of higher/lower interest charge on the loans and borrowings with floating interest rates.
(b)
Foreign currency risk
The Group’s reporting currency is 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 significantly influenced 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. Whenever possible, the Group
seeks to maintain a natural hedge through the matching of liabilities against assets in the same currency to
minimise foreign exchange exposure.
As at 31 December 2014, had the exchange rate of Rupiah against US Dollar depreciated/appreciated by 10%
(2013: 10%) with all other variables held constant, profit before tax for the year ended 31 December 2014 would
have been Rp166.7 billion (2013: Rp190.4 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.
