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INDOFOOD AGRI RESOURCES LTD
ANNUAL REPORT 2015
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For the financial year ended 31 December 2015
34.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
(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 2015, had the interest rates of the loans and borrowings been 50 basis points higher/lower
(2014: 50 basis points higher/lower) with all other variables held constant, profit before tax for the year ended 31
December 2015 would have been Rp6.1 billion (2014: Rp5.8 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 2015, had the exchange rate of Rupiah against US Dollar depreciated/appreciated by 10%
(2014: 10%) with all other variables held constant, profit before tax for the year ended 31 December 2015 would
have been Rp308.6 billion (2014: Rp166.7 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 flows of the Group’s financial instrument will
fluctuate 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 profit margin on sale of its
finished products may be affected if the cost of CPO (which is the main raw material used in the refinery plants
to manufacture cooking oils and fats products) increases and the Group is unable to pass such cost increases
to its customers.
During 2015 and 2014, it is, and has been, the Group’s policy that no hedging in financial instruments shall be
undertaken.
The Group’s policy is tominimise the risks of its rawmaterial costs arising from the fluctuations in the commodity
prices by increasing self-sufficiency in CPO for the refinery operations (through the purchase of CPO from the
Group’s own plantations).
