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Financials

UNAUDITED FINANCIAL STATEMENTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2018

Financials Archive

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Income Statement

Balance Sheet

Review Of Group Performance

Financial Performance

Overview: The Group reported weak 3Q2018 and 9M2018 results with net losses after tax of Rp18 billion and Rp65 billion, respectively. The poor performance was mainly due to the fall in sales and profit in Plantation Division arising from weak commodity prices and timing in shipment. The decline was partly offset by a strong 3Q result at Edible Oils & Fats (EOF) Division. The Group's performance was further affected by foreign currency loss arising from weakened Indonesian Rupiah. Core net profit (excluding forex, biological assets and plasma receivables impacts) were Rp23 billion in 3Q2018 and Rp96 billion in 9M2018, declining around 80% over the same periods last year.

Revenue: The Group's 3Q2018 consolidated revenue (i.e. external sales) came in flat to 3Q2017 at Rp3.7 trillion. Despite a 20% increase in crude palm oil (CPO) production against last year, the Group reported lower external parties in Plantation due to higher internal sales to own downstream refineries and an increase of 55,000 tonnes of CPO stock arising from timing in shipment. The lower external sales in Plantation Division was fully offset by a solid sales growth at EOF Division. On year-to-date basis, the Group reported lower consolidated revenue of Rp10.3 trillion, decreasing 16% over same period last year on lower external sales from Plantation Division.

Plantation Division reported second consecutive quarter of strong production recovery with fresh fruit bunches (FFB) nucleus and CPO increasing 14% and 20% over 3Q last year. On year-to-date basis, FFB nucleus and CPO production grew 6% to 2,446,000 tonnes and 663,000 tonnes, respectively. Despite higher palm production, Plantation Division's sales declined 11% in 3Q2018 and 20% in 9M2018 mainly due to lower average selling prices of agriculture crops (CPO -9%, palm kernel -14%, rubber -19%), and lower sales volume of CPO and palm kernel related products arising from timing in shipment. There was ~84,000 MT of CPO inventory build-up in 9M2018 compared to ~27,000 MT of inventory drawdown in 9M2017.

On a positive note, EOF Division reported a solid third quarter with sales increasing 24% over 3Q last year from higher sales volume of edible oil products. 9M2018 EOF Division also performed better with revenue growing 3% over the same period last year. In line with the strong sales and lower CPO costs, EOF Division contributed positively to the Group's results.

Gross Profit: The Group's 3Q2018 and 9M2018 gross profit declined 13% and 25% respectively mainly due to the effects of lower selling prices and sales volume of palm products (i.e. CPO and palm kernel related products), as well as higher palm production costs arising from wage inflation and higher fertilizer application.

Selling and Distribution Expenses (S&D): The Group reported higher S&D in 3Q2018 mainly due to higher export tax related to the export of edible oil products. On year-to-date basis, the S&D was close to prior year's level.

Other Operating Income/(Expenses): Lower Other operating income in 9M2018 mainly due to lower miscellaneous income. Other operating expenses were lower in 3Q2018 and 9M2018 mainly due to provision of unrecoverable advances in 2017.

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 losses of Rp138 billion in 9M2018 compared to Rp2 billion in 9M2017. The higher foreign currency loss was mainly due to the weakening of Indonesian Rupiah against US Dollar to Rp14,929/US$ as of 30 September 2018 versus Rp13,548/US$ at the end December 2017. The Group has reduced its USD loan exposure through repayment of certain USD loan facilities in 2018, lowering its USD loan mix to 14% or USD110 million as of end September 2018.

Share of Results of Associate Companies: In 3Q2018, the Group recognised Rp6 billion loss from its associate companies compared to Rp2.6 billion loss in 3Q last year. The higher loss was mainly attributable to lower cane crushing reported by Roxas. On year-to-date basis, the share of profit of associate companies of Rp5 billion was slightly higher than prior year.

Share of results of joint ventures: The share of profit from joint ventures in Brazil sugar operations was lower in 3Q2018 and 9M2018, declining 32% and 39% respectively over the same periods last year. The lower profit contribution was mainly attributable to lower selling prices and sales volume of raw sugar. This was partly offset by higher contribution from ethanol as the joint ventures switched to produce more profitable ethanol.

Gain/ (Loss) Arising from Changes in Fair Values of Biological Assets: The Group recognized a fair value gain of Rp5 billion in 9M2018 compared to Rp39 billion loss in 9M2017. The slight gain was mainly due to higher sales volume of FFB and partly offset by lower selling prices.

Profit from Operations: Profit from operations declined 40% in 3Q2018, owing largely to lower gross profit, foreign currency loss and lower profit contribution from joint ventures. 9M2018 Profit from operation declined 53% mainly due to the same reasons, and this was partly offset by positive net changes in fair value of biological assets.

Financial Expenses: The Group's financial expenses grew 16% higher in 3Q2018 mainly due to higher working capital facilities, and higher blended interest rate in line with the interest rate hikes by the US Fed and the Bank of Indonesia.

Income Tax Expense: The Group recognised lower income tax expenses in 3Q2018 and 9M2018 in line with lower operating profit. However, the effective tax rates remained high mainly due to nondeductible expenses and the Company's unrealised foreign exchange loss, and the write-off of certain tax losses carried forward.

Net (Loss)/ Profit After Tax: The Group reported net losses after tax of Rp18 billion in 3Q2018 and Rp65 billion in 9M2018 compared to profits in the comparative period in last year.

Review of Financial Position

The Group reported total non-current assets of Rp30.3 trillion as of September 2018 compared to Rp30.0 trillion in the previous year end. The increase was mainly due to (i) investment in a joint venture, Canapolis Holding S.A.(Canapolis) of BRL 23.6 million (approximately US$7.3 million); (ii) investment in an associate, Daitocacao of Rp105 billion; (iii) higher advances for plasma plantation project.

In July 2018, the Company's 50% joint venture CMAA acquired Vale do Pontal Açucar e Alcool Ltda (UVP) through the issuance of new shares to the seller, JFLIM Participações S/A (JFLIM) based on an agreed valuation of approximately BRL 75.9 million (equivalent to US$19.7 million). Post the issuance of new shares, CMAA will be 35% each owned by the Company and JF Family, and 30% by JFLIM. The Company will continue to adopt equity accounting for CMAA as UVP is jointly controlled by these 3 shareholders under the shareholder agreement. The acquisition will enable CMAA to expand its footprint in the sugar and ethanol industry in Brazil with a total annual cane crushing capacity increasing from 5.8 million MT (the existing UVT mill and Canapolis mill) to 8.3 million MT after the acquisition. All 3 mills are located in the state of Minas Gerais, and in close proximity to each other, forming a strong cluster enabling operating and management synergies.

As of September 2018, total current assets of Rp8.2 trillion were 11% higher than the previous year end. The increase was mainly attributable to (i) higher inventories arising from timing in sales of palm products and sugar, as well as higher fertilisers; (ii) higher prepaid expenses and prepaid corporate taxes; and (iii) higher trade and other receivables in line with higher edible oils & fats sales. This was partly offset by lower cash levels arising from the granting of additional shareholder loan of Rp420 billion by the Company to its subsidiary, PT SIMP for working capital purpose.

Total current liabilities as of September 2018 came in 51% or Rp3.2 trillion higher compared to same period last year. This was mainly attributable to the net drawdown of Rp1.1 trillion short-term facilities for working capital and higher current maturities of long-term facilities of Rp1.5 trillion, higher accrual of expenses and payables to third parties of Rp0.6 trillion.

The Group reported net current liabilities of Rp1.4 trillion in September 2018 arising from higher current maturities of long-term facilities. The facilities are expected to be refinanced when they fall due.

Total non-current liabilities of Rp7.9 trillion as of September 2018 were 18% lower than Rp9.6 trillion in December 2017. This was mainly due to lower long-term loan facilities arising from payment of loan installments and higher current maturities of long-term facilities.

Review of Cash Flows

The Group generated lower net cash flows from operations in 3Q2018 and 9M2018 of Rp401 billion and Rp506 billion, respectively mainly due to lower profit from operating activities.

Net cash flows used in investing activities in 9M2018 was Rp1,605 billion compared to Rp1,338 billion in 9M2017. The increase was mainly due to investment in a joint venture, Canapolis of Rp100 billion, higher additions to property, plant and equipment of Rp238 billion and higher plasma projects of Rp124 billion. This was partly offset by lower investment in associate companies of Rp240 billion.

In 9M2018, the financing activities generated net cash flows of Rp485 billion which mainly due to the drawdown of bank facilities to fund capital expenditures and working capital. This compared to net cash flows used in financing activities of Rp280 billion in 9M2017.

The Group's cash levels decreased from Rp2,930 billion at end December 2017 to Rp2,374 billion at September 2018.

Commentary

The uncertainties surrounding global growth and China's trade tensions with the U.S. continue to put pressure on agricultural commodity prices. 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 and large domestic palm consumption.

The domestic palm demand is expected to be further supported by the roll-out of B20 (20%) biodiesel blending in September 2018 to both Public Service Obligation (PSO) and non-PSO sector and the Indonesian government's intention to accelerate the implementation of B30 biodiesel program in 2019.

The Group will continue to strengthen the fundamentals and improve margins through better yielding crops, cost efficiencies and other innovations to improve productivity.


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