As part of ANTAM's commitment to effectively implement GCG, ANTAM has formed the Risk Management Division which is responsible to the President Director The monitoring and management of material business risk is conducted based on Risk Management Policy No. 373.K/01/DAT/2015 which the latest was signed by the President Director on 10 December 2015. The policy guides ANTAM's employees to effectively conduct risk management process and activities in accordance to existing regulations an to ensure the equal perception and understanding on risk management as well as the realization of continual risk management process to ensure a coordinated and integrated risk management and to ensure the strategic initiatives are inline with corporate strategy.
ANTAM's risks include:
a. Commodity Price Risk
As at December 31, 2017, ANTAM's trade receivables from ferronickel and nickel ore sales are directly linked to LME price index. If the LME nickel price weakens or strengthens by 5% compared to the price as at December 31, 2017 (assuming all other variables remain unchanged), the post-tax profit of ANTAM for the year ended December 31, 2017 will decrease or increase by approximately Rp32,759,963 (2016: Rp20,255,689).
In 2017, there was significant volatility in commodity prices for nickel, gold and coal. The volatility was caused by weak demand due to the global economic crisis and the increasing level of world commodity reserves. Although ANTAM has diversified customers and does not depend on a specific market or country, due to the dominance of nickel and gold product portfolio on other products, ANTAM's revenue can still be significantly affected by the volatility in commodity prices.
Other than natural hedging through the increase of non-nickel and non-gold portfolio portions (bauxite and coal), it is also possible for ANTAM to mitigate commodity price risks through hedging transactions with the main goal of protecting their budgeted income. However some hedging positions may cause ANTAM to lose the chance to obtain even higher profits when prices rise.
ANTAM believes that the best way to handle the risk of commodity price decrease is by decreasing the production cost. ANTAM has a commitment to convert their main fuel source from Industrial Diesel Oil and Marine Fuel Oil to a cheaper fuel source, such as natural gas, coal or hydro power.
b. Foreign Exchange and Interest Rate Risks
The Group's revenue and cash position are mostly in US Dollar while most of the Group's operating expenses are in Indonesian Rupiah. In addition, the Group also has significant borrowings in US Dollar. Thus, the Group suffers from the negative effect of the Indonesian Rupiah weakening against the US Dollar.
If the Rupiah weakens or strengthens by 5% compared to US Dollar on December 31, 2017 (assuming all other variables remain unchanged), the profit before tax of the Group for the year ended December 31, 2017 will decrease or increase approximately by Rp139,852,614 (2016: Rp181,649,154), mainly as a result of foreign exchange gains or losses on translation of the US Dollar denominated net assets (liabilities) as at the reporting date.
The Group is exposed to interest rate risks through the impact of rate changes on interest-bearing liabilities. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit or loss of a defined interest rate shift. If loan interest rates increase or decrease by 0.1% compared to the loan interest rate on December 31, 2017 (assuming all other variables remain unchanged), the profit before tax of the Group for year ended December 31, 2017 will decrease or increase, respectively, by approximately Rp10,567,956 (2016: Rp10,345,938).
c. Credit Risk
risk is the risk that the Group will incur a loss arising from their customers'
or third parties' failure to fulfill their contractual obligations. There are
no significant concentrations of credit risk. The Group manages and controls
this credit risk by setting limits on the amount of risk they are willing to
accept for individual customers and by monitoring exposures in relation to such
d. Liquidity Risk
liquidity risk management includes managing the profile of borrowing maturities
and funding sources, maintaining sufficient cash and marketable securities and
the ability to close out market positions. The Group's ability to fund their
borrowing requirements is managed by maintaining diversified funding sources
with adequately committed funding lines from high-quality lenders. The Group is
exposed to liquidity risk on account of their bonds and capital loans for their
The contractual due date of financial liabilities such as trade payables, accrued liabilities, other payables and short-term bank loans are less than one year, except for financial liabilities such as bonds payable and investment loans. The amounts disclosed in the table are the contractual undisclosed cash flows.