PT Summarecon Agung Tbk | Laporan Tahunan 2010 Annual Report

These consolidated financial statements are originally issued in Indonesian language.
PT SUMMARECON AGUNG Tbk AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2010 and 2009
(Expressed in thousands of rupiah, unless otherwise stated)
35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company’s and Subsidiaries’ principal financial liabilities comprise bank loans, overdrafts and
trade payables. The main purpose of the financial liabilities is to raise working capital for the
Company’s and Subsidiaries’ operations and investments activities. The Company and Subsidiaries
have various financial assets, such as cash and cash equivalents, trade receivables, other receivables,
due from related parties and other assets which arise directly from its operations.
The main risks arising from the Company's and Subsidiaries’ financial instruments are market risk
(including foreign currency risk and commodity price risk), interest rate risk, credit risk and liquidity risk.
The management reviews and approves policies for managing each of these risks, which are
described in more detail as follows:
a. Foreign currency risk
The Company and Subsidiaries do not significantly use foreign currency because nearly all the
Company’s and Subsidiaries’ transactions, assets and liabilities are denominated in rupiah.
The Company’s and Subsidiaries’ reporting currency is the rupiah. The Company and Subsidiaries
face foreign exchange risk in cases of imported purchases of equipment and building equipment,
but these are not material, so the effect of foreign currency risk, such as the U.S. dollar, European
euro and Singapore dollar, are not significant.
The Company and Subsidiaries do not have any formal hedging policy for foreign exchange
exposure. If needed, hedging will be obtained to reduce risk to foreign currency risk. Transactions
in foreign currencies other than in connection with regular operations is maintained at an
acceptable minimum level.
b. Commodity price risk
The Company’s and Subsidiaries’ exposure to commodity price risk relates primarily to the
purchase of major building materials, such as iron, steel, paint, cement, etc. Before this happens,
the Company and Subsidiaries enter into contracts with their suppliers that bind them to a fixed
price, quantity and period of delivery based on the needs of the Company and Subsidiaries.
The Company’s and Subsidiaries’ policy is to minimize the risks arising from the fluctuations in
commodity prices by maintaining the stability level of development costs beside net income that
should be achieved by the Company and Subsidiaries.
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c. Interest rate risk
The Company’s and Subsidiaries’ interest rate risk mainly arises from loans for working capital and
investment purposes. Loans at variable rates expose the Company and Subsidiaries to fair value
interest rate risk. The Company and Subsidiaries manage their interest rate risk by obtaining loans
with a mixture of fixed and floating interest rates.
d. Credit risk
The Company and Subsidiaries are exposed to credit risk arising from the credit granted to their
customers and tenants. To mitigate this risk, receivable balances are monitored on an ongoing
basis to reduce the exposure to bad debts.
When a customer fails to make payment for the property purchased, the Company and
Subsidiaries are not going to hand over the title to the property. As for the tenant whose payment
is in arrears, the tenant’s security deposit will be closely monitored. Before the arrears become
greater than the security deposit, necessary action should be made, such as termination of rental
agreement, reschedule of payment, etc.
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