The Group’s Board of Directors and Board of Commissioners, through its Risk Management Committee, have overall responsibility for the creation and oversight of the Group’s corporate risk management policy and are actively involved in the assessment, planning, review and approval of all the risks in the Group’s organization.
The Group implements an Enterprise Risk Management (ERM) which is administered by the Enterprise Audit & Risk Management (EARM) Division, particularly by the Enterprise Risk Management (ERM) Department, which is responsible for the coordination, facilitation, evaluation and implementation of the Group’s Corporate Risk Management System. In addition, the ERM department also ensures that the Risk Control Self Assessment (RCSA) is being implemented by risk owners.
Further details regarding the Group’s financial risk management policies are set out below:

Credit Risk
Credit risk is the risk of suffering financial loss, should any of the Group’s customers and other third parties fail to fulfill their contractual obligations to the Group. The Group’s credit risk arises from cash and cash equivalents, trade receivables, other receivables, due from plasma, due from related parties, investments in equity securities and restricted funds.
The Group mitigates credit risk arising from transactions with customers by ensuring that sales of products are only made to creditworthy customers with proven track records or good credit history. The Group also implements a system of advance payments for domestic CPO sales as much as possible.
To mitigate the credit risk arising from funds placed with banks, the Group places such funds with reputable financial institutions.
The Group does not enter into derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated.

Market Risk
Market risk is the risk primarily due to changes in interest rates, commodity prices and foreign currency exchange rates.

Interest Rate Risk
The Group’s exposure to interest rate risk arises from long-term loans with floating interest rates. To manage this risk, the Group monitors the market interest rate movement.
Based on a sensible simulation, had the interest rates of long-term loans been 50 basis points higher/lower, with all other variables held constant, loss before income tax benefit (expense) for the years ended December 31, 2015 and 2014 would have been lower/higher by Rp3.06 billion and Rp2.17 billion, respectively, mainly as a result of higher/lower interest charges on floating rate long-term loans.

Commodity Price Risk
The Group is exposed to commodity price risk due to certain factors, such as weather, government policies, level of demand and supply in the market and the global economic environment. Such exposure mainly arises from the Group’s purchase of raw materials and sale of products. The Group manages this risk by maintaining a pricing strategy that is consistent with the contracts and efficiently managing production costs to keep it at a level below the selling price.

Foreign Exchange Risk
Foreign exchange risk arises because the Group enters into transactions denominated in a currency other than its functional currency. It is the Group’s policy, where possible, to settle liabilities denominated in its functional currency with the cash generated from its own operations in that currency. Where the Group has liabilities denominated in a currency other than its functional currency and have insufficient reserves of that currency to settle them, cash already denominated in that currency will, where possible, be transferred from elsewhere within the related parties.

Liquidity risk
Liquidity risk is the risk whereby the Group does not have sufficient financial resources to discharge its matured liabilities.
The Group manages liquidity risk by maintaining sufficient cash, managing the profile of loan maturities and funding sources, and ensuring the availability of funding through an adequate amount of committed credit facilities. In addition, the Group also evaluates its projected and actual cash flow information and continuously assesses conditions in the financial markets for opportunities to pursue fund-raising initiatives, including bank loans and equity markets.

Financial instrument
Based on PSAK 60, “Financial Instruments: Disclosures”, there are levels of fair value hierarchy as follows:

  1. quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1),
  2. inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from market prices) (level 2), and
  3. inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).


The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

  • Short-term financial instruments with remaining maturities of one year or less (cash and cash equivalents, trade receivables, other receivables, short-term bank loans, trade payables, other payables and accrued expenses). These financial instruments approximate their carrying amounts largely due to their short-term maturities.
  • Long-term variable-rate financial assets and liabilities (due from related parties and long-term loans). The fair value of these financial instruments approximates their carrying amounts largely due to their frequently repricing interest rates.
  • Financial asset carried with no active market (investments in equity securities, due from plasma and restricted funds). These financial instruments are carried at cost, which equals their carrying amounts since their fair values cannot be measured reliably. It is not practical to estimate the fair value of these financial instruments since there is no time period defined even though payment is not expected to be completed within 12 months after the date of the consolidated financial statements.