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Review of Group Performance
Review of Group Performance
Overview: The Group delivered a positive set of 2Q2017 result with higher revenue and 232% increase in profit attributable to equity holders. The good performance was attributable to higher palm production and improved contribution from a joint venture, CMAA, but this was partly offset by biological assets loss and foreign currency fluctuations. Our strong 1H2017 result likewise contributed by similar factors, in addition to higher average selling prices of agriculture crops.
Rotterdam CIF crude palm oil (CPO) prices were an average of US$739 per tonne in 1H2017, a 5% increase from US$704 per tonne in FY2016. Rubber prices (RSS3 SICOM) recovered strongly by 40% to an average of US$2,300 per tonne in 1H2017 compared to US$1,647 per tonne in FY2016.
Revenue: The Group reported consolidated revenue (after elimination of inter-segment sales) of Rp4.1 trillion in 2Q2017 and Rp8.5 trillion in 1H2017, increasing 15% and 27% over the same comparative periods in 2016 on higher sales from both Plantation and Edible Oils & Fats (EOF) Divisions.
Plantation Division achieved a 15% revenue growth in 2Q2017 on higher sales volume of palm products (i.e. crude palm oil ("CPO") and palm kernel ("PK") related products), as well as higher rubber sales. 1H2017 revenue grew 33% over the same period last year, reflecting mainly the effects of higher sales volume and average selling prices of palm products and rubber.
EOF Division continued to perform well with revenue growing 5% in 2Q2017 and 16% in 1H2017 mainly attributable to higher sales of edible oil and stearin products.
Gross Profit: The Group's gross profit declined 6% to Rp661 billion in 2Q2017 due to the impact of higher CPO input costs in EOF Division and higher palm production costs arising from timing in fertilizer application. 1H2017 gross profit increased 39% to Rp1,718 billion on higher sales volume and selling prices of palm products.
Selling and Distribution Expenses (S&D): The Group reported lower S&D in 2Q2017 and 1H2017, declining 15% and 2% over the same comparative periods in 2016. This was mainly due to lower advertising and promotion expenses and lower other selling expenses.
Other Operating Expenses: The Group recognised lower other operating expenses in 2Q2017 and 1H2017 which were mainly due to lower plasma expenses and amortised cost adjustment of plasma receivables. This was partly offset by provision of unrecoverable advances.
Foreign Exchange (Loss)/ Gain: The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. The Group recognized a foreign currency gain of Rp20 billion in 1H2017 compared to Rp151 billion in 1H2016. The Indonesian Rupiah strengthened from Rp13,436/US$ at end December 2016 to Rp13,319/US$ at end June 2017.
Share of Results of Associate Companies: The Group recognised Rp7 billion profit from share of results of associate companies in 2Q2017 and 1H2017 as compared to losses in the same comparative periods in 2016. The improved results arose from profit contribution mainly from Roxas, the largest integrated sugar business in the Philippines and the discontinuation of equity accounting for Heliae due to loss of significant influence since Oct 2016. The Group has now recorded Heliae as an available-for-sale financial asset.
Share of results of a joint venture: The Group recognised Rp70 billion of profit from its sugar operation in Brazil, CMAA in 2Q2017 versus a loss of Rp70 billion in 2Q2016. The significant improvement was principally due to higher selling prices of raw sugar, ethanol and electricity, as well as higher sales volume of raw sugar. On year-to-date basis, CMAA also reversed from a loss position to a profit of Rp27 billion.
(Loss)/ Gain Arising from Changes in Fair Values of Biological Assets: The Group recognised biological assets losses of Rp38 billion in 2Q2017 and Rp85 billion in 1H2017 mainly arising from lower selling prices of agriculture produce of palm trees and sugarcane compared to December 2016.
Profit from Operations before Biological Assets (Loss)/ Gain: Profit from operations grew 50% and 124% in 2Q2017 and 1H2017, respectively. The improved profit was driven by higher profit from Plantation Division and improved results from associates and CMAA. This was partly offset by foreign currency fluctuations.
Income Tax Expense: The Group recognised higher income tax expenses in 2Q2017 and 1H2017 in line with higher operating profit.
Net Profit After Tax (NPAT): The Group's NPAT growth was attributable to higher operating profit, but partly offset by higher income tax expense. Profit attributable to equity holders likewise came in strongly in 2Q2017 and 1H2017, growing 232% and 116% over the same comparative periods last year.
Review of Financial Position
As of 30 June 2017, total non-current assets maintained at Rp29.7 trillion compared to previous year end. In 2Q2017, the Group invested Rp104 billion in PT Indoagri Daitocacao (Daitocacao) and Rp45 billion in Asian Assets Management Pte. Ltd. (AAM). The increase was offset by lower property, plant and equipment, income tax refunds in 2Q2017, and lower advances for projects.
The Group recorded total current assets of Rp7.3 trillion at end June 2017 compared to Rp6.8 trillion at December 2016. The increase was mainly attributable to higher trade and other receivables in line with higher edible oil sales, higher prepayments relating to salaries and benefits, higher prepaid income tax and cash levels.
Total current liabilities were Rp5.3 trillion at end June 2017, a 13% higher than December 2016. This was mainly attributable to higher trade payables relating to purchases of raw materials and fertilizers, and accrual of dividends payable, as well as higher short-term facilities to support the refinery operation during the peak Lebaran season in 2Q2017. This was partly offset by lower advances from customer and lower income tax payable.
Total non-current liabilities were Rp10.8 trillion at 30 June 2017, slightly lower than Rp11.0 trillion at end December 2016. This decline was mainly due to the lower long-term loan facilities arising from payment of loan installments and lower deferred tax liabilities. This was partly offset by higher estimated liabilities for employee benefits which was determined based on the actuarial calculations in accordance with the provisions of the Indonesian Labor Law.
Review of Cash Flows
The Group generated positive net cash flows from operations of Rp317 billion in 2Q2017 and Rp538 billion in 1H2017 due to improved operating performance, but partly offset by higher trade receivables arising from the peak Lebaran season in 2Q2017.
Net cash flows used in investing activities in 2Q2017 and 1H2017 were Rp454 billion and Rp788 billion respectively, which comprised principally (i) capital expenditure relating to additions of property, plant and equipment, and bearer plants; and (ii) investments in associates, Daitocacao and AAM. These investing activities were mainly funded by cash generated from operations and partly from bank borrowings.
The financing activities were related to the drawdown of short-term facilities to support the refinery operation during the Lebaran season, and the payment of dividends to shareholders.
The net cash increase in 1H2017 was Rp122 billion, increasing the Group's cash levels Rp2.4 trillion at end December 2016 to Rp2.5 trillion at end June 2017.
Agricultural commodity prices remain volatile on expected recovery in palm and other competing vegetable oil production, and lower growth in key markets like China. The volatility is further aggravated by the EU's proposed legislation changes in April 2017 to ban the use of vegetable oils such as palm oil, soy and rapeseed for biofuels by 2020, and stricter regulations over certified and sustainable vegetable oil throughout EU.
In Indonesia, our operations continue to be supported by a positive domestic economic outlook, the ongoing fiscal reforms in the areas of infrastructure and social security, and healthy domestic consumption. We continue to enhance our operational capacities to capture the growth opportunities, as well as proactively improve operations, increase yields, raise productivity and control costs.