Analysis of PT.

Tunas
Baru Lampung Tbk
ON DERIVATIVE – HEDGING – FOREIGN CURRENCY – SEGMENT
REPORTING

Yusuf Raharja | Capital Market | 008201600066

PRESIDENT UNIVERSITY | ACCOUNTING 2016
Company Profile
Established in 1973, PT. Tunas Baru Lampung Tbk (IDX: TBLA) is a member company of Sungai
Budi Group which was founded in 1947 and is a pioneer in Indonesia's' agricultural industry. Such
involvement stems from a desire to assist in the country's development and to capitalize on
Indonesia's competitive advantages in agriculture. This company produces various kinds of
plantation materials such Oil Palm and Sugar Cane , palm oil mill,sugar Refinery, sugarmill and
related downstream products. PT Tunas Baru Lampung was publicly listed in Jakarta Stocks
Exchange in February 14, 2000.

I. DERIVATIVE AND HEDGING

PT. Tunas Baru Lampung has the responsibility to determine the basic principles
of the Company’s risk management as well as principles covering specific areas, such as
foreign exchange risk, interest rate risk, price risk, credit risk, liquidity risk and then in
order to minimize those kind of risk so they use derivative financial instruments. The Group
only enters into derivative financial instrument contracts in order to hedge underlying
exposures.
a. Derivative Accounting Policies
The policy of derivative that applied by the company is ISAK No. 26, Reassessment
of Embedded Derivatives and PSAK No. 60, “Financial Instruments: Disclosures”.
b. In Accounting Term The company use these kind of methods in Derivative and
Hedging Activities:
 Derivative financial instruments are recognised at fair values.
 The fair value of derivative financial instruments is classified as a non-current asset
or liability (maturity more than 12 month)
 Derivative assets and liabilities are presented at the amount of unrealized gains or
losses on derivative contracts.
 The company use cash flow hedge for derivative and realted hedge item.
 - Changes in the fair value of derivatives that are designated and qualify as cash flow
hedges for accounting purposes and that are effective, are recognised in other
comprehensive income.
- Changes in the fair value of derivatives that do not meet the criteria for hedge
accounting purposes are recorded in profit or loss.
 Cash received on sales of palm oil and its derivatives are recorded as advance
received and revenue when the sales invoice is issued.
 To avoid abuse, IAS 39 limits the use of hedge accounting. Hedge accounting may
be applied if the following specific conditions are met:
- Hedging instruments and items that are protected must be clearly stated in
formal documentation, supplemented with objectives and risk management
strategies that underlie hedging activities.
- The relationship between a hedging instrument and an item that is protected is
effective.
- For cash flow protection for future transactions, the possibility of a protected
transaction must be very high and the transaction must be risky, vulnerable to
variations in cash flows that will affect the company's profit / loss.
c. Derivative Instrument
The Instrument of derivative mostly come from the foreign exchange. The company
use the foreign exchange line form some bank. Foreign Exchange Line (FX Line) is a
type of facility provided to customers in order to meet customer needs for a foreign
exchange (foreign exchange transaction) such as spot, forward, and swap contracts. In
this transaction payments and purchases have not been in the form of effective funds,
but only in the form of an agreement (contract) so that the bank bears the risk of non-
payment of a transaction.
I. Foreign Exchange Line from Bank Mandiri
- Forex Line for Forward, Spot, Swap, Tom and Option transactions amounting to
US$ 20,000 thousand for hedging export import transactions from fluctuation
of US$/Rupiah currency (Maturity March 31, 2019).
- Forex Line facility with notional amount of US$ 100,000 thousand on January 23,
2018, for hedging of bonds payable from fluctuation transaction of foreign
 currency, and can be used for Cross Currency Swap (CCS) and Call Spread Option
(CSO).
II. Foreign Exchange Line from PT Bank CIMB Niaga Tbk (CIMB)
- Forex Line facility for sell/buy foreign currencies with a maximum limit of US$
20,000 thousand, which can be used for Today, Spot, Tom and Forward transaction
for maximum of three (3) months with condition of settlement against good fund.
- Forex Line facility with notional amount of US$ 55,000 thousand on January 24,
2018, for hedging purposes of bonds payable from fluctuation transaction of
foreign currency, and can be used for CCS and CSO.
III. Foreign Exchange Line from PT Bank Maybank Indonesia Tbk
- a maximum limit of US$ 20,000 thousand, In 2018, which can be used for CCS,
CSO, and FX Line Sell/Buy for Spot, Tom, Forwad and Swap for hedging on
bonds payable denominated in US$ currency.
- The Company has forward sell and buy transaction amounted to US$ 3,000
thousand, and CCS and CSO transactions for hedging of bonds payable
IV. Foreign Exchange Line from PT Bank UOB Indonesia
- FX Line (UOB) in form of Spot, Tom and Forward) amounting to US$ 20,000
thousand. As of December 31, 2018 and 2017 the forward buy transactions with
UOB has not been used.
V. Foreign Exchange Line from PT Bank Permata Tbk
- FX line in form of loan equivalent risk limit of US$ 3,000 million with a notional
limit of US$ 150,000 thousand, which can be used for Today, Spot, Tom and
Forward transaction for maximum of six (6) months with condition of settlement
against good fund for vanila forex.
VI. Foreign Exchange Linefrom JP Morgan Chase Bank
- FX Line with a maximum limit of US$ 30,000 thousand, which can be used for
Spot and Forward transaction for maximum of six months.
VII. Foreign Exchange Line from OCBC NISP
- FX Line with a maximum limit of US$ 20,000 thousand, which can be used for
the Company’s transaction and hedging in foreign currencies.
VIII. Foreign Exchange Line form PT Bank Rakyat Indonesia
  FX line with a maximum limit of US$ 16,200 thousand, which can be
used for TOM, TOD, Spot, Forward and Swap transactions for
maximum of six months with condition of settlement against good fund.
From the derivative instrument we can conclude that mostly the company use
derivative for hedging the foreign currency, bonds payable, export import, and for doin
the transaction of derivative instrument such as swap interest rate, forward contract,
option and so on. Then the company also use many banks to do the transaction of
derivative because as we know that the main business of this company is Agriculture -
Crude Palm Oil, they will get demand or buyer from overseas. The buyer itself will pay
it to us by export by using their currency. As we know that our currency rupiah with
the foreign currency is very volatile and then the price of commudity like CPO price
also is very volatile. Moreover yhe company also has the huge transaction thus it makes
the company use the derivative financial instrument and hedging instrument to hold the
price in order not to volatile.

d. The Derivative and Hedging Product :

1. Derivative
Derivative is a bilateral contract or an agreement to exchange payments
whose value is derived or derived from a product that becomes a "basic reference"
or also called an "underlying product"; rather than trading or exchanging physically
an asset, market participants make an agreement to exchange money, assets or a
value in the future by referring to assets that are the main reference.
Derivatives are used by companies to manage their positions against the
risks of commodity price movements, interest rates, foreign exchange rates
"without" affecting the physical position of the underlying product.
2. Hedging

Hedging is a risk management technique by using derivatives or other hedging

instruments to compensate for offset changes in fair value or changes in cash flows
related to assets, liabilities and transactions in the future.

Year 2018 2017

Fair Value Adjustment on 5.651 -
Cash Flow Hedging
Instrument
Total Comprehensive 767.355 925.057
Income
 FV on CF Hedging Instrument
𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝐻𝑒𝑑𝑔𝑖𝑛𝑔 𝑡𝑜 𝑡ℎ𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 =
Total Comprehensive Income
5.651
𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝐻𝑒𝑑𝑔𝑖𝑛𝑔 𝑡𝑜 𝑡ℎ𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 =
767.355
𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝐻𝑒𝑑𝑔𝑖𝑛𝑔 𝑡𝑜 𝑡ℎ𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 = 0,0073 𝑜𝑟 0,736%
Hedging instruments include derivatives, non-derivative financial assets, or non-
derivative financial obligations. The hedged items includes assets, liabilities, company
commitments, future transactions or net investment in foreign operations. To be a
protected item, an item must be risky for the company, fair value or cash flows that are
generated in the future may change and affect the company's profits. The ratio of
hedging instrument to the comprehensive income is 0,73%. It means that the amount
of hedging instrument is not too materiality to the comprehensive income and the
company succeed to mitigate the company risk such as the fluctuation of currency by
using hedging instrument. In the other ways because of the amount of ratio is close to
1 %, it means also that amount of hedging ratio can not be underestimated, because of
that the company also get another profit 0,73% from hedging activities.

3. Swap
Swaps Contract is an agreement between two parties or companies to mutually
maintain cash flows in a certain period (for a certain period of time) that will come.
This agreement is determined specifically on the date of cash payments and how to
calculate the amount of cash to be exchanged (paid by each party). Usually in the
calculation the value of the future, interest rate, currency exchange rate, and other
relevant variables are considered.
 The fair value of interest rate swaps is calculated as the present value of the
estimated future cash flows based on observable yield curves.

 The Company has the interest rate risk arises that come from longterm borrowings.
Borrowings issued at floating rates expose the company to cash flow interest rate
risk.. The Company has policy to maintain approximately 25% of its borrowings
in fixed-rate instruments. For the years ended December 31, 2017 and 2016, the
Company’s borrowings at floating rate were denominated in the Rupiah and U.S.
Dollar currencies.
 Based on various scenarios, the Company manages its cash flow interest rate risk
by using fixed-to-floating interest rate swaps. Under the interest rate swaps, the
Company agrees with other parties to exchange, at specified intervals (primarily
quarterly), the difference between fixed contract rates and floating rate interest
amounts calculated by reference to the agreed notional amounts.
 Cross Currency Swap have been determined using interest and exchange rates
quoted by the bank for contracts owned by the Group at the statement of financial
position date and calculated by reference to observable market interest and
exchange rates.
 Cross-currency swaps are an over-the-counter (OTC) derivative in a form of an
agreement between two parties to exchange interest payments and principal
denominated in two different currencies. In a cross-currency swap, interest
payments and principal in one currency are exchanged for principal and interest
payments in a different currency. Interest payments are exchanged at fixed intervals
 during the life of the agreement. Cross-currency swaps are highly customizable and
can include variable, fixed interest rates, or both.
CCS transactions for hedging of bonds payable as follow:
 On January 30, 2018, with notional amount of US$ 5,000.
 On June 5, 2018, with notional amount of US$ 10,000.

CCS transactions with CIMB for hedging purposes of bonds payable (Note
22) from fluctuation transaction of foreign currency as follow:

 On January 30, 2018, with notional amount of US$ 10,000 thousand.

4. Forward
forward contract is an agreement between two parties, where one party is required
to submit certain assets on a certain date to come and the other party must pay
according to a certain amount charged on the asset on the date of delivery. As a
private agreement between two parties, the forward contract is specifically
regulated to meet the needs of each party, therefore it is called private (depending
on the personalities of both parties). The purpose of this contract is to protect both
parties from fluctuations in asset values that may occur during a certain period of
time, ie from the time the contract is signed to the delivery or payment made.

 The fair value of forward foreign exchange contracts is determined using forward
exchange rates at the reporting date.

5. Option
Option contracts, basically divided into two types, namely calls as buying rights
and puts as selling rights. Buyers of calls or call owners have the right to buy certain
assets at certain prices and certain dates in the future. It is recommended that the
put buyer or put owner has the right to sell certain assets at a certain price and on a
certain date in the future.
The company has Call Spread Option for hedging the currency and interest
rate. Call Spread Option (CSO) is a structured product (Structured Product) which
is a combination of two Plain-Vanilla Option transactions, namely buying Call
Options and selling Call Options which are carried out simultaneously in a
transaction contract with a different and nominal value of the Strike Price.
Call Spread Option (CSO) have been determined using interest and
exchange rates quoted by the bank for contracts owned by the Group at the
statement of financial position date and calculated by reference to observable
market interest and exchange rates.
CSO transactions for hedging of bonds payable as follow:
 On October 4, 2018 with notional amount of US$ 10,000 thousand for
strike price between Rp 15,000 – Rp 16,000 (in full Rupiah).
 On October 4, 2018, with notional amount of US$ 25,000 thousand for
strike price between Rp 15,000 – Rp 15,500 (in full Rupiah).

CSO transactions with CIMB for hedging purposes of bonds payable

fluctuation transaction of foreign currency as follow:

 On January 25, 2018, with notional amount of US$ 25,000 for strike
price between Rp 13,277 – Rp 15,277 (in full Rupiah).
 On January 25, 2018, with notional amount of US$ 10,000 for strike
price between Rp 13,500 – Rp 14,500 (in full Rupiah).
 II. FOREIGN CURRENCY
The Company use the foreign currency for their activities such as Export-Import.
Because the main company’s product is crude palm oil, it means CPO has the comudity
price which are traded in the comudity exchange. It is also using the foreign currency.
For the reporting in the financial statements of each of the Group’s companies are
measured using the currency of the primary economic environment in which the entity
operates (the functional currency). The consolidated financial statements are presented
in Rupiah which is the Company’s functional and the Company’s presentation
currency.
a. Foreign Currency Accounting Policies
The policy of derivative that applied by the company is
- ISAK No. 33, Foreign Currency Transaction and Advance Consideration
b. Foreign Currency Translation
- Company Functional Currency is Rupiah.
- The currency used in the preparation and presentation of the consolidated financial
statements is the Indonesian Rupiah (Rupiah) which is also the functional currency
of the Company.
- Foreign currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions.
- Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognized in the profit or
loss.
- The functional currency is the currency, among others, that mainly influences sales
prices for goods and services, and of the country whose competitive forces and
regulations mainly determine the sales prices of its goods and services, and the
currency in which funds from financing activities are generated.
- As of December 31, 2018 and 2017 the conversion rates used by the Group were
the middle rates of Bank Indonesia as follows
- The Cash that Involve the Foreign Currency

- As of December 31, 2018 and 2017, the Group have monetary assets and liabilities
in foreign currencies as follows
 - As of December 31, 2018, the exposure of foreign currency liabilities held by the
Group in the form of bonds payable has been hedged against foreign currency
fluctuations in the form of Cross Currency Swap contracts and Call Option Spreads

c. The Loss or Gain Using the Foreign Currency

These are the gain /loss on changes in foreign exchange for last 5 years :

TBLA

Years 2014 2015 2016 2017 2018

Gains (losses) on changes in (104.542) (164.522) (5.066) (24.591) (52.859)
foreign exchange rates

These Are the Total Comprehensive Income for the last 5 Years :

TBLA

2014 2015 2016 2017 2018

Total comprehensive income 427.681 567.104 638.167 925.057 767.355
After we got the gain /loss on changes in foreign exchange and total comprehensive
income, we can calculate how the matteriality is the forreign currency effect the income of
PT Tunas Baru Lampung. Below the calculation of the materiallity :

𝑅𝑎𝑡𝑖𝑜 changes foreign exchange to the total comprehensive income

Changes in Forex
=
Total Comprehensive Income

TBLA

Years 2014 2015 2016 2017 2018

Gains (losses) on changes in (104.542) (164.522) (5.066) (24.591) (52.859)
foreign exchange rates

Total comprehensive income

427.681 567.104 638.167 925.057 767.355

Gains (losses) on in foreign - - - - -
exchange divided by TCI 0,24444 0,29011 0,00794 0,02658 0,06888

On 2014 (The ratio of the changes foreign exchange to the total comprehensive
income is 0,2444 or 24,4%) company and 2015 (The ratio of the changes foreign
exchange to the total comprehensive income is 0,2901 or 29,01%) the impact of
foreign exchange to the income of the company was quiet big and we can say that the
amount of the changes foreign exchange rates is Material for the income.
Then for the year 2016, 2017, and 2018 %) the impact of foreign exchange to the
income of the company was so so and we can say that the amount of the changes foreign
exchange rates is Immaterial for the income.
 III. SEGMENT REPORTING

a. Segment Policy
 Segment information is prepared using the accounting policies adopted for preparing
and presenting the consolidated financial statements.
 IFRS 8 Operating Segments requires particular classes of entities (essentially those
with publicly traded securities) to disclose information about their operating
segments, products and services, the geographical areas in which they operate, and
their major customers. Information is based on internal management reports, both in
the identification of operating segments and measurement of disclosed segment
information.
 PSAK No. 5 (Revised 2009) requires operating segments to be identified on the
basis of internal reports about components of the Group that are regularly reviewed
by the chief operating decision maker in order to allocate resources to the segments
and to assess their performances. In contrast, the predecessor standard required the
Group to identify two sets of segments (business and geographical), using a risks
and returns approach.

b. Company Segment
- The Company engages in plantation business with 4 main product categories, namely
palm products (mainly CPO and Palm Kernel), palm cooking oil, sugar/sugar cane and
biodiesel.
- Operating segments are identified on the basis of internal reports about components of
the Group that are regularly reviewed by the chief operating decision maker in order to
allocate resources to the segments and to sassess their performances.
- Inter-segment sales are based on the agreement of both parties.
 - The Group is presently engaged in plantations and manufacturing businesses. These
business activities are the basis on which the Group reports its operation segment
information as follows:

1. Revenue Test

An industry segment is a reporting segment if the income is => 10% of the combined
revenue from all industry segments.

Segment Operating Intersegmen Total Test Value Reportable

Segment t Revenue Segment Segment
Revenue Revenue Under
Revenue
Test
Plantation 59.109 806.081 862.190 < 1.451.518 No
Manufacturing 8.558.780 5.094.219 13.652.999 > 1.451.518 Yes
 Total 8.614.889 5.900.300 14.515.189
In this revenue test means that Manufacturing segment is reporting segment while the
plantation is rejected to be reported in segment reporting. The reason the rejecting
plantation is because total segment revenue is less than test value 10%.

2. Assets Test

An industry segment is a reporting segment if the assets are => 10% of the combined assets
of all industry segments.

Operating Reportable
Segment Segment’s Test Value Segment Under
Identifiable Assets Asset Test

Plantation 9.841.098 > 3.060.909 Yes

Manufacturing 20.767.998 > 3.060.909 Yes

Total 30.609.096
In the test Asset means that Plantation and Manufacturing segment is included in
reporting segment. Because their Asset test is accepted (Segment’s Operating Profit
More Than Test Value)

3. Operating Profit Test

An industry segment is a reporting segment if the operating profit is => 10% of joint
operating profit from all industry segments.

Segment Operating More than or Test Value Reportable

Segment’s Less Than Segment
Operating Under
Profit Operating
Profit Test
Plantation 614.329 > 169.418 Yes
 Manufacturing 1.079.857 > 169.418 Yes
Total 1.694.186

In this revenue test means that Plantation and Manufacturing segment is reporting
segment. Because their operating profit test is accepted (Segment’s Operating Profit
More Than Test Value)
- The Group also reported segment determined by location of assets or operation of the
Group, The segmented area are from Outside Indonesia, Kalimantan, Java, and
Sumatera, Then the segment itself can be shown as follows:

Sales Geographic Segment

Area 2017 2018 Percentage

Outside Indonesia - 25.587 -
-
Sumatera 8.484.841 7.238.313 17,22125031
Jawa 427.856 1.294.880 66,95786482
Kalimantan 62.011 56.109 -10,5188116
Total 8.974.708 8.614.889

After we segmented the financial statement, We know that where area the company
should improve the sales is. from that calculation we know the area that has lowest of
decreasing percentage of growth from Year to Year is in Sumatera, Thus the company
should more be focus for the next time to increase their growth of sales in Sumatera
Area.
Then for the highest area is from Java which get 66,9 % growth from the previous year.
Then the company should be maintain their sales achievement in Java.

Asset Geographic Segment

Area 2017 2018 Percentage

Outside Indonesia - 2.943.775 100
Sumatera 12.340.408 10.989.648 -12,2912
Jawa 832.867 930.546 10,497
Kalimantan 873.943 1.073.555 18,5936
Total 14.047.218 15.937.524

In 2018 The company for the first time has an aset outside Indonesia, and then In
Sumatera has the decreasing of percentage of an aset which is -12,3%. It means that
the asset in Sumatera that productive to support the business has been decreased. So
the company should improve again this decreasing side.