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Review of Group Performance
Overview: The Group reported weaker palm production due to the effects of the 2015 El-Nino with 9M2016 FFB nucleus and CPO production declining by 15% and 20% yoy to 2,070,000 tonnes and 573,000 tonnes. Despite this, the Group achieved higher profit on recovery of commodity prices, higher edible oil sales volume, biological assets gain and foreign currency gains. The Group reported net profit after tax of Rp182 billion and Rp300 billion in 3Q2016 and 9M2016 respectively compared to net losses in the same periods last year.
Revenue: The Group reported consolidated revenue (after elimination of inter-segment sales) of Rp3.6 trillion in 3Q2016 and Rp10.3 trillion in 9M2016, growing 9% and 2% over the comparative periods in 2015. The improved sales were mainly due to stronger sales reported by the Edible Oils & Fats (EOF) Division.
The Plantation Division reported a 7% revenue growth in 3Q2016 on the combined effects of significantly higher selling prices of crude palm oil (CPO) and palm kernel (PK) related products and higher sugar sales which more than offset weaker palm output. On year-to-date basis, revenue was 5% lower than 9M2015 on lower sales volume of palm products. This was partly offset by higher average selling prices of palm products and higher sugar sales.
EOF Division continued to perform well with revenue growing 29% in 3Q2016 and 14% in 9M2016 mainly attributable to strong sales volume of edible oil products.
Gross Profit: The Group's gross profit in 3Q2016 of Rp827 billion was 19% higher than the same quarter in last year on higher average selling prices of palm products. On year-to-date basis, gross profit came in flat to last year.
Other Operating Income/(Expenses): These variances were mainly attributable to the net changes in allowance for decline in market values of inventories, and provision for changes in amortised cost of plasma receivables.
Selling and Distribution Expenses (S&D): Higher S&D expenses in 3Q2016 and 9M2016 were mainly relating to tactical promotion campaigns, which contributed to the higher sales of EOF.
Foreign Exchange Gain/(Loss): The foreign exchange impacts were principally attributable to the translation of US dollar and Singapore dollar denominated loans, assets and liabilities. The Group recognised foreign currency gains of Rp40 billion and Rp191 billion in 3Q2016 and 9M2016 as the Indonesian Rupiah strengthened against the US Dollar (Rp12,998/US$ as of 30 September 2016 versus Rp13,795/US$ in last year end).
Share of Results of Associate Companies: In 9M2016, the Group recognized share of losses from associate companies of around Rp38 billion was close to last year's level. The losses were mainly attributable to Heliae, a R&D development stage company which engages in the development of technology solutions for the commercial algae production of a variety of potential uses including food and feed, fertilizer, chemicals and pharmaceuticals. This was partly offset by the share of profit of Roxas, the largest integrated sugar business in the Philippines.
Share of Results of a Joint Venture: The Group's 50% joint venture in Brazil, CMAA contributed a profit of Rp46 billion in 3Q2016 on higher prices of sugar and ethanol. On year-to-date basis, share of losses from CMAA was lower at Rp72 billion compared to Rp158 billion in 9M2015.
Gain Arising from Changes in Fair Values of Biological Assets: The Group recognized gains of Rp25 billion in 3Q2016 and Rp120 billion in 9M2016 mainly relating to net changes in the fair values of agriculture produce. The gains were mainly attributable to higher volume and average selling prices of agriculture crops.
Profit from Operations before Biological Assets Gain: In 9M2016, Profit from Operations grew 229% on foreign currency gains and lower losses from CMAA.
EBITDA exclude forex gain/ (loss): Group recorded EBITDA growth of 34% in 3Q2016. This was mainly due to higher gross profit on significantly higher average selling prices of palm products and share of profit from a joint venture, CMAA. On year-to-date, EBITDA came in close to prior year.
Financial Income: The Group recorded lower financial income in 9M2016 mainly due to lower fixed deposit placements.
Income Tax Expense: The high effective tax rates were mainly due to non-deductible expenses, the write-off of certain tax losses carried forward and share of losses of associate and joint venture companies which are not available for set-off against profit from other group's entities.
Net Profit/(Loss) After Tax: The Group reported net profit after tax of Rp182 billion in 3Q2016 and Rp300 billion in 9M2016, compared to net losses in the comparative periods in 2015. This was primarily due to higher profits from operations as explained above, but partly offset by higher effective tax.
Review of Financial Position
Total non-current assets of Rp30.0 trillion in September 2016 was slightly higher compared to Rp29.9 trillion in the previous year end. The increase was mainly due to higher plasma receivables and higher carrying value in CMAA. This was partly offset by lower advances for purchases of fixed assets and lower carrying value of investment in associate companies due to share of losses and a capital reduction.
As of September 2016, total current assets of Rp6.0 trillion were Rp0.6 trillion higher than the previous year end. The increase was mainly attributable due to (i) higher inventories arising from higher sugar and palm kernel related stocks at plantation, higher CPO and refined palm oil; (ii) higher trade and other receivables in line with higher edible oil sales; and (iii) higher advances to suppliers for the purchase of raw materials and prepayments. This was partly offset by lower cash level.
As of September 2016, total current liabilities of Rp5.2 trillion were 20% lower than last year end of Rp6.5 trillion. This was mainly attributable to the refinancing of certain short-term facilities to long-term loans during the year. This was partly offset by higher income tax payable.
Total non-current liabilities of Rp10.5 trillion in September 2016 were 21% higher than Rp8.7 trillion in December 2015. This was mainly due to the refinancing of certain short-term facilities to long-term loans as explained above, higher amount due to related parties and 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 Rp907 billion in 9M2016 compared to Rp913 billion in the same period last year. Net cash flows used in investing activities in 9M2016 was Rp1,300 billion, which comprised principally capital expenditure relating to additions of fixed assets, bearer plants, advances for plasma projects and the investment in a tea plantation of Rp55 billion. The investing activities were mainly funded by cash flows from operations, internal cash and loan facilities.
The net cash flows generated from financing activities of Rp242 billion were mainly coming from drawdowns of loan facilities. The group's cash levels reduced by Rp0.2 trillion to Rp1.8 trillion as of September 2016.
Agricultural commodity prices remain uncertain on expected recovery in palm and soybean production, and slower growth in some key markets like China. Global developments and market conditions remain challenging and unpredictable. These circumstances have aggravated the complex mix peculiar to any agribusiness such as the weather, export restrictions, the higher co-relationship between the prices of crude oil and various commodities, and the performance of competing crops such as soybean oil.
As a diversified and vertically integrated agribusiness with a dominant presence in Indonesia, our operations continue to be supported by positive market drivers that include good demographics, strong economic fundamentals, and a fast-growing middle class with rising discretionary incomes.
We are cautiously managing our activities during this challenging period to mitigate risks and exposures. We will place a stronger emphasis on extracting the optimal from our value chain, and proactively improve operations, increase yields, raise productivity and control costs.