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)
(d)
Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default
on its obligations.
The Group has credit risk arising from the credit granted to its customers and plasma farmers and placement
of current accounts and deposits in the banks.
Other than as disclosed below, the Group has no concentration of credit risk.
Cash and cash equivalents
Credit risk arising from placements of current accounts and deposits is managed in accordance with the Group’s
policy. Such limits are set to minimise the concentration of credit risk and therefore mitigate financial loss
through potential failure of the banks.
Trade receivables
The Group has policies in place to ensure that sales of products are made only to creditworthy customers
with proven track record or good credit history. It is the Group’s policy that all customers who wish to trade on
credit terms are subject to credit verification procedures. For export sales, the Group requires cash against the
presentation of documents of title. For domestic sales, the Group may grant its customers credit terms from 1
to 35 days from the issuance of invoice. The Group has policies that the limit amount of credit exposure to any
particular customer, such as, requiring sub-distributors to provide bank guarantees. In addition, receivable
balances are monitored on an ongoing basis to reduce the Group’s exposure to bad debts.
When a customer fails to make payment within the credit terms granted, the Group will contact the customer
to act on the overdue receivables. If the customer does not settle the overdue receivable within a reasonable
time, the Group will proceed to commence legal proceedings. Depending on the Group’s assessment, specific
provisions may be made if the debt is deemed uncollectible. To mitigate credit risk, the Group will cease the
supply of all products to customers in the event of late payment and/or default. See Note 23 for details.
Plasma Receivables
As disclosed in Notes 2.9 and 31(a), plasma receivables represent costs incurred for plasma plantation
development which include costs for plasma plantations funded by the banks and temporarily self funded by the
subsidiaries awaiting banks’ funding.
Plasma receivables also include advances to plasma farmers for topping up loan instalments to the banks,
advances for fertilisers and other agriculture supplies. These advances shall be reimbursed by the plasma
farmers and the collateral in form of titles of ownership of the plasma plantations will be handed over to the
plasma farmers once the plasma receivables have been fully repaid.
The Group through partnership scheme also provides technical assistance to the plasma farmers to maintain
the productivity of plasma plantations as part of the Group’s strategy to strengthen relationship with plasma
farmers which is expected to improve the repayments of plasma receivables.
At the end of the reporting period, the Group’s maximum exposure to credit risk is represented by the carrying
amount of each class of financial assets recognised in the balance sheets.
