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Review of Group Performance
Review of Group Performance
Overview: The Group reported a strong 1Q2017 result on higher average selling prices of agriculture crops and higher palm production. Rotterdam CIF crude palm oil (CPO) prices increased 10% to an average of US$774 per tonne in 1Q2017 from US$704 per tonne in FY2016. The price recovery was partly due to lower supply in 2016. Rubber prices (RSS3 SICOM) also recovered strongly by 54% to an average of US$2,544 per tonne in 1Q2017 compared to US$1,647 per tonne in FY2016.
The Group's 1Q2017 consolidated revenue grew 40% and profit attributable to equity holders came in 80% higher at Rp171 billion. The improved results were mainly contributed by the Plantation Division, but this was partly offset by biological assets loss and lower foreign currency gain.
Revenue: The Group reported consolidated revenue (after elimination of inter-segment sales) of Rp4.4 trillion in 1Q2017, increasing 40% over the same quarter last year on higher sales contribution from Plantation and Edible Oils & Fats (EOF) Divisions.
In 1Q2017, Plantation Division achieved a 54% revenue growth mainly driven by significantly higher average selling prices and sales volume of crude palm oil (CPO) and palm kernel (PK) related products. EOF Division also performed well with revenue growing 29% on higher selling prices and sales volume of edible oil products.
Gross Profit: The Group's gross profit doubled from Rp527 billion in 1Q2016 to Rp1,057 billion in 1Q2017. The strong gross profit was contributed by higher selling prices of CPO of 35% and PK of 90%, as well as higher sales volume of palm products. This was partly offset by lower profit contribution from edible oil products due to higher raw material input costs, which comprised mainly CPO.
Selling and Distribution Expenses (S&D): The Group reported higher S&D in 1Q2017 of Rp153 billion compared to Rp134 billion in 1Q2016. This was mainly due to higher advertising and promotion expenses and higher freight costs arising from higher sales.
Other Operating Expenses: The Group recognised lower other operating expenses in 1Q2017 which was mainly due to lower plasma expenses and amortised cost adjustment of plasma receivables.
Foreign Exchange Gain: The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. The Group recognised lower foreign currency gain of Rp23 billion in 1Q2017 compared to Rp121 billion in 1Q2016. The Indonesian Rupiah strengthened during the quarter to Rp13,321/US$ as of 31 March 2017 versus Rp13,436/US$ at the end December 2016).
Share of Results of Associate Companies: The Group recognised lower losses from associate companies in 1Q2017 following the discontinuation of equity accounting in Heliae following the loss of significant influence since 4Q 2016. The Group has recorded Heliae as an available-for-sale financial asset since October 2016.
(Loss)/ Gain Arising from Changes in Fair Values of Biological Assets: The Group recognised a fair value loss of Rp47 billion in 1Q2017 mainly arising from net changes in fair values of unharvested agriculture produce of palm trees. The loss was mainly due to low production during the low season and lower selling prices of fresh fruit bunches compared to December 2016.
Profit from Operations before Biological Assets (Loss)/ Gain: Profit from Operations grew 196% mainly on strong gross profit, but partly offset by lower foreign currency gain.
Income Tax Expense: The Group recognised higher income tax expenses in 1Q2017 in line with stronger operating profit.
Net Profit After Tax (NPAT): The Group's NPAT grew 243% to Rp329 billion in 1Q2017 on higher operating profit, but partly offset by higher income tax expense. Profit attributable to equity holders likewise came in strongly at Rp171 billion, growing 80% over the same quarter last year.
Review of Financial Position
As of March 2017, total non-current assets of Rp29.8 trillion were slightly higher than the previous yearend. The increase was mainly due to higher advances and prepayments, and higher deferred tax assets.
The Group reported total current assets of Rp7.7 trillion in March 2017, 14% higher than the previous year end. The increase was mainly attributable due to (i) higher inventories arising from higher CPO, stearin and finished products at the refinery; (ii) higher trade and other receivables in line with higher edible oil sales; (iii) higher advances to suppliers for the purchase of raw materials and supplies; and (iv) higher cash levels.
As of March 2017, total current liabilities came in 16% higher at Rp5.4 trillion. This was mainly attributable to (i) higher trade payables arising from higher purchases of raw materials, fertilizers and higher accrual of salaries and employee benefits; (ii) drawdown of short-term facilities to support the refinery operation in anticipation of the peak Lebaran season in 2Q2017; and (iii) higher income tax payable in line with higher profit. This was partly offset by lower advances from customers.
Total non-current liabilities stood at Rp10.9 trillion as of 31 March 2017, slightly lower than Rp11.0 trillion in end December 2016. This was mainly due to the lower long-term loan facilities arising from the settlement of loan installments.
Review of Cash Flows
The Group generated net cash flows from operations of Rp221 billion in 1Q2017 compared to Rp262 billion in 1Q2016 despite improved operating performance. This was mainly due to higher inventories and working capital to support the refinery operation in anticipation of the peak Lebaran season in 2Q2017.
Net cash flows used in investing activities in 1Q2017 was Rp334 billion, which comprised principally capital expenditure relating to additions of property, plant and equipment, and bearer plants.
The financing activities were related to the drawdown of short-term facilities to support the refinery operation. The Group's cash levels increased by Rp290 billion to Rp2,695 billion as of 31 March 2017.
Agricultural commodity prices remain unpredictable on expected recovery in palm and soybean production, lower growth in key markets like China and fluctuations of Indonesian Rupiah and US Dollar.
Our dominant operations in Indonesia continue to be supported by positive economic outlook for Indonesia, the ongoing fiscal reforms in the areas of infrastructure and social security, and healthy domestic consumption. The Group has been building up organisational and operational capacities in anticipation of the economic recovery, and are well set to capture the growth opportunities.
We continue to focus on extracting the optimal from our value chain, and proactively improve operations, increase yields, raise productivity and control costs.