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Overview: The Group reported a soft 1Q18 results due to lower palm production and weaker commodity prices. In 1Q2018, nucleus fresh fruit bunches (FFB) decreased by 6% to 695,000 tonnes. Rotterdam CIF crude palm oil (CPO) prices decreased 6% to an average of US$674 per tonne in 1Q2018 from US$717 per tonne in FY2017. Rubber prices (RSS3 SICOM) also decreased by 14% to an average of US$1,715 per tonne in 1Q2018 compared to US$2,001 per tonne in FY2017.
Consequently, the Group's consolidated revenue and attributable profit declined 27% and 71%, respectively over the same quarter last year.
Revenue: The Group reported consolidated revenue (after elimination of inter-segment sales) of Rp3.2 trillion in 1Q2018, decreasing 27% over the same quarter last year on lower sales contribution from Plantation and Edible Oils & Fats (EOF) Divisions.
In 1Q2018, Plantation Division reported a 34% revenue decline due to lower average selling prices and sales volume of crude palm oil (CPO), palm kernel (PK) and rubber. Whereas EOF Division's revenue decreased by 6% in 1Q2018 on lower edible oils selling prices arising from lower CPO costs.
Gross Profit: The Group's 1Q2018 gross profit declined 36% to Rp658 billion reflecting the effects of lower sales from both divisions and higher palm production costs arising from higher fertilizer and upkeeping costs.
Selling and Distribution Expenses (S&D): The Group reported lower S&D in 1Q2018, 7% declined compared to 1Q2017 mainly due to lower advertising and promotion expenses and lower freight cost.
Other Operating Income/(Expenses): The Group reported lower operating income in 1Q2018 mainly attributable to lower miscellaneous income. Whereas higher other operating expenses in 1Q2018 was attributable to changes in amortised costs of plasma receivables.
Foreign Exchange (Loss)/ Gain: The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. The Group recognized foreign currency loss of Rp22 billion in 1Q2018 compared to Rp23 billion gain in 1Q2017. Indonesian Rupiah weakened against US Dollar during the quarter to Rp13,756/US$ as of 31 March 2018 versus Rp13,548/US$ at the end December 2017.
Share of Results of Associate Companies: The Group recognised Rp6 billion loss from share of results of associate companies in 1Q2018 compared to Rp249 million loss in 1Q2017. The higher loss was attributable to AAM (engages in property operation) and FPNRL (operates mainly sugar business in the Philippines).
Share of results of a joint venture: In Brazil, our sugar operations under CMAA reported lower losses in 1Q2018 with share of results of Rp3 billion vs Rp43 billion in 1Q2017. The improvement was mainly due to higher ethanol and sugar sales.
Loss Arising from Changes in Fair Values of Biological Assets: The Group reported Rp12 billion biological assets loss in 1Q2018 compared to Rp48 billion in 1Q2017. The biological assets loss was mainly due to lower volume and selling prices of FFB.
Profit from Operations: The Group reported a 58% decline in 1Q2018 profit from operations, reflecting largely lower gross profit and foreign currency loss. This was partly offset by lower losses from a joint venture and lower biological assets loss.
Income Tax Expense: The Group recognizes lower income tax expenses in 1Q2018 on lower operating profit. However, the high effective tax rate of 60% in 1Q2018 was due to non-deductible expenses, the write-off of certain tax losses carried forward and losses from certain entities which are not available for set-off against profit from other group's entities.
Net Profit After Tax (NPAT): The Group's NPAT declined 84% to Rp 53 billion in 1Q2018 on lower operating profit, but partly offset by lower income tax expenses. Profit attributable to equity holders likewise came in lower, declining 71% over the same quarter last year.Review of Financial Position
As of March 2018, total non-current assets of Rp30.1 trillion were slightly higher than the previous year end. The increase was mainly due to investment in a joint venture, Canapolis Holding S.A. (Canapolis) in February 2018 for BRL 23.6 million (approximately Rp100 billion).
The Group reported total current assets of Rp7.9 trillion in March 2018, 7% higher than previous year end. The increase was mainly attributable to (i) higher inventories arising from higher PKO, fertilisers, refined, bleached and deodorised (RBD) palm oil and RBD Olein; (ii) higher advances and prepayments for the purchase of raw materials and supplies; and (iii) higher trade and other receivables. This was partly offset by lower cash levels.
Total current liabilities were Rp8.0 trillion as at March 2018, increasing 25% over December 2017. This was mainly attributable to the drawdown of short-term working capital facilities to support the refinery operation in anticipation of the peak Lebaran season in 2Q2018, higher current portion of long-term facilities, and higher accruals relating to salaries and related benefits, and A&P expenses.
The Group reported net current liabilities of Rp131 billion in March 2018 arising from higher current portion of long-term facilities. The Group expects to refinance these maturing facilities as they fall due.
The non-current liabilities stood at Rp8.6 trillion as of 31 March 2018, declining 11% compared to FY2017. This was mainly due to lower long-term loan facilities arising from payment of loan installments and higher current portion of long-term facilities and lower deferred tax liabilities.Review of Cash Flows
Despite lower profit before taxation, the Group generated net cash flows from operations of Rp234 billion in 1Q2018 compared to Rp249 billion in 1Q2017. This was mainly due to a reduction in working capital.
Net cash flows used in investing activities in 1Q2018 was Rp506 billion compared to Rp361 billion in 1Q2017 mainly due to investment in a joint venture, Canapolis in February 2018 and higher funding for plasma projects.
Net cash flows generated from financing activities were Rp215 billion in 1Q2018 compared to Rp406 billion in 1Q2017. The increase during the quarter was mainly due to the drawdown of short-term facilities to support the refinery operation in anticipation of the peak Lebaran season in 2Q2018.
The net cash decrease in 1Q2018 was Rp56 billion, reducing the Group's cash levels from Rp2,930 billion at end December 2017 to Rp2,883 billion at end March 2018.
Agricultural commodity prices will continue to remain volatile. As a diversified and vertically integrated agribusiness with a dominant presence in Indonesia, our operations continue to be supported by a positive domestic economic outlook. The ongoing fiscal reforms in Indonesia in the areas of infrastructure and social security, and large domestic consumption with Indonesia being the second largest consumer of palm oil globally, will continue to support our operations.
The Group will continue to strengthen the fundamentals and improve margins through better yielding crops, cost control measures and other innovations to improve productivity.