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Financial PerformanceOverview: The Group's reported higher revenue and gross profit in 1H2020 despite challenging market conditions and Covid-19. The higher revenue and gross profit were mainly due to higher selling prices of palm and edible oils and fats (EOF) products. Notwithstanding this, the Group continued to report net loss in 1H2020.
In 1H2020, the Group reported higher net loss of Rp575 billion despite higher gross profit and higher joint venture result, as well as lower G&A expenses. This was largely due to loss arising from changes in fair value of biological assets as a result of lower volume and lower FFB price compared to December 2019, higher share of losses of associate companies and higher income tax expenses arising from deferred tax adjustments as a result of tax rate changes in Indonesia.
Revenue: The Group's 1H2020 consolidated revenue (after elimination of inter-segment sales) grew 6% to Rp6,873 billion mainly due to higher selling prices of palm products (CPO +22%, PK +13%) and EOF products.
In 1H2020, the Plantation Division revenue increased 4% mainly attributable to higher selling prices of palm products. This was partly offset by lower sales volume of palm products in line with lower production.
EOF Division's revenue improved by 6% in 1H2020 mainly attributable to higher selling prices. The Covid-19 pandemic has affected our EOF division due to decrease in demand from HORECA (hotels, restaurants, caterings). We have put in place various measures to minimise the impacts.
Gross profit: In 1H2020, gross profit improved significantly by 51% over the same period last year mainly driven by higher prices of palm products and EOF products.
General and Administrative Expenses (G&A): In 1H2020, G&A expenses decreased 13% mainly due to lower salaries costs and travelling expenses.
Foreign Exchange (Loss)/ Gain: The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. The Group recognised foreign currency loss of Rp57 billion in 1H2020 compared to Rp7 billion gain in 1H2019. The foreign currency loss was mainly due to weakening of Indonesia Rupiah against US Dollar to Rp14,302/US$ as of 30 June 2020 versus Rp13,901/US$ as of 31 December 2019.
Share of Results of Associate Companies: The Group reported higher share of losses from its associate companies in 1H2020, largely relating to the loss-making sugar assets in Philippines. The Group recorded Rp163 billion one-off impairment loss on assets and goodwill, and catch-up of depreciation relating to a sugar asset previously classified as held for sale.
Share of Results of Joint Ventures: The Group reported share of profit of Rp30 billion in 1H2020 compared to share of losses in the comparative period in 2019. This was mainly due to higher sugar prices, gain on biological assets and foreign exchange impacts.
(Loss)/ gain arising from Changes in Fair Values of Biological Assets: The Group reported loss arising from changes in fair value of biological assets in 1H2020 as a result of lower volume and selling prices of fresh fruit bunches compared to December 2019.
Loss from Operations: In 1H2020, the Group reported lower loss from operations of Rp90 billion compared to loss of Rp124 billion mainly due to higher gross profit, lower G&A expenses and higher contribution from joint ventures result. This was offset by higher share of losses in associate companies, loss in fair value change of biological assets and higher foreign exchange losses.
Financial Income: The Group's financial income decreased 25% in 1H2020 mainly due to lower fixed deposit during the period.
Financial Expenses: The Group's financial expenses decreased by 8% in 1H2020 mainly due to lower blended interest rate in line with lower benchmark interest rates.
Income Tax Expense: The Group recognised higher income tax expenses in 1H2020, largely due to deferred tax adjustments as a result of tax rate changes in Indonesia.
Net Loss After Tax: In 1H2020, the Group reported higher losses of Rp575 billion compared to Rp523 billion in 1H2019 despite lower loss from operations and lower financial expenses. This was mainly due to higher income tax expenses.Review of Financial Position
As at June 2020, the Group reported total non-current assets of Rp29.8 trillion compared to Rp30.8 trillion in December 2019. The decrease was mainly due to lower carrying value of investment in joint ventures due to foreign exchange translation and lower carrying value of investment in associate companies, as well as lower project advances, claims for tax refund, deferred tax assets and property, plant and equipment.
The Group reported total current assets of Rp7.1 trillion as at June 2020 compared to Rp6.8 trillion as at December 2019. This was mainly due to increase in cash balances arising from improved cash flows generated from operating activities. This was partly offset by lower CPO stocks in the refineries, prepaid taxes and biological assets.
The current liabilities of the Group were Rp9.9 trillion as at June 2020 compared to Rp9.2 trillion as at December 2020. This was mainly due to higher trade and other payables and accruals, and higher short-term interest-bearing loans and borrowings as a result of the reclassification of long-term loan instalments that fall due within next 12 months.
The Group reported net current liabilities of Rp2.7 trillion mainly due to high proportion of short-term interest-bearing loans and borrowings. The Group is in the progress to reprofile certain short-term loans to long-term, as well as continue to review its capital structure to maximise returns.
Total non-current liabilities decreased 5% from Rp8.3 trillion as at December 2019 to Rp7.9 trillion as at June 2020. The decrease was mainly due to lower long-term interest-bearing loans and borrowings and lower deferred tax liabilities.
The Group's net debt to total equity ratio decreased from 0.48 times as at December 2019 to 0.46 times as at 30 June 2020. This was due to lower net debts as a result of higher cash compared to prior year end.Review of Cash Flows
The Group reported higher cash flows from operation of Rp1,709 billion in 1H2020 compared to Rp572 billion in 1H2019. This was mainly due to improved working capital arising from lower other non-current receivables arising from refund of tax claims, lower advances to suppliers and lower prepaid taxes.
Net cash flows used in investing activities were Rp726 billion in 1H2020 compared to Rp1,423 billion in 1H2019. The decline was largely due to lower additions of property, plant and equipment and lower plasma projects. In addition, the Group reported no investment in 1H2020 compared to Rp358 billion investment in associate companies in 1H2019.
In 1H2020, the Group recorded used of net cash flows of Rp95 billion in financing activities mainly due to repayment of loan instalments.
The Group's cash level increased from Rp1,787 billion as at December 2019 to Rp2,700 billion as at June 2020 largely due to higher cash flows generated from operating activities and lower investing activities.
The economic uncertainties arising from the ongoing US-China trade tensions and the recent Covid-19 outbreak will continue to exert additional volatility on the price of agricultural commodities. The demand for palm oil from key import markets like China and India, and the price of crude oil which affects discretionary biodiesel demand, plus CPO's price relative to soya oil, will have an impact on the direction of CPO prices.
In light of the Covid-19 pandemic, the Group has implemented various mitigation measures in the workplace to ensure the safety and wellbeing of our staff and minimise disruptions to our business.
Amidst this volatile commodity price environment, we will continue to prioritise our capital expenditure investment in growth areas, and focus on cost-control measures and other innovations to increase productivity.