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Financials

UNAUDITED FINANCIAL STATEMENTS FOR THE SECOND QUARTER ENDED 30 JUNE 2019

Financials Archive

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Income Statement

Balance Sheet

Review Of Group Performance

Financial Performance

Overview: Weak agricultural commodity prices continued to affect negatively the performance of the Group's oil palm plantations and sugar operations. The Group reported a weak 2Q2019 result with higher net losses of Rp393 billion compared to 2Q2018. On year-to-date basis, net losses widened to Rp523 billion compared to Rp46 billion in 1H2018.

Revenue: The Group consolidated revenue (after elimination of inter-segment sales) decreased 7% in 2Q2019 and came in flat in 1H2019 compared to the same period last year. This was mainly due to lower contributions from Plantation Division on lower selling prices of palm products in 2Q2019 (CPO -15%, PK -38%) and in 1H2019 (CPO -16%, PK -44%). This was partly offset by higher sales contribution from EOF division.

Plantation Division's revenue declined 19% in 2Q2019 mainly attributable to lower selling prices of palm products and lower sales volume of CPO. Despite higher sales volume of palm products in 1H2019, plantation sales declined 10% reflecting mainly lower average selling prices.

On a positive note, EOF Division performed well with higher sales volume of edible oils and fats products. In 2Q2019 and 1H2019, however this was partly offset by lower selling prices.

Gross Profit: The Group's gross profit declined 66% and 45% in 2Q2019 and 1H2019 respectively mainly due to the effects of lower palm product prices (CPO -15%, PK -38%) in 2Q2019, and (CPO -16%, PK -44%) in1H2019. This was partly offset by higher profit contribution from the EOF Division on lower raw material costs i.e. CPO.

Selling and Distribution Expenses (S&D): In 2Q2019, S&D increased 17% due to higher A&P and higher freight and distribution expenses. On year-to-date basis, the higher S&D was attributable to distribution expenses and freight charges in line with higher sales of edible oil products.

Other Operating Expenses: Higher operating expenses in 2Q2019 was due to higher EIR amortization of financial assets (i.e. plasma receivables).

Foreign Exchange Gain/ (Loss): The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. The Group recognized foreign currency gain of Rp7 billion in 1H2019 compared to Rp99 billion loss in 1H2018. The foreign currency gain in 1H2019 was mainly due to strengthening of Indonesia Rupiah against US Dollar to Rp14,141/US$ as of 30 June 2019 versus Rp14,481/US$ at the end of December 2018.

Share of results of Associate Companies: The Group recognised share of losses of Rp13 billion in 2Q2019 and Rp25 billion in 1H2019 compared to share of profit in the comparative periods in 2018. This was mainly attributable to losses from FPNRL, reflecting falling sugar prices and intense competition relating to Roxas sugar business in the Philippines.

Share of results of Joint Ventures: The Company reported share of losses of Rp2 billion in 2Q2019 and Rp38 billion in 1H2019 compared to share of profit in the comparative periods in 2018. This was mainly due to falling sugar and ethanol prices, and forex losses arising from the weakening of Brazilian real.

Gain/ (Loss) Arising from Changes in Fair Values of Biological Assets: The Group reported Rp33 billion biological assets gain in 1H2019 compared to Rp11 billion loss in 1H2018. The fair value gain in 1H2019 was mainly due to fresh fruit bunches, oil palm seeds and industrial timber valuations.

(Loss)/ Profit from Operations: The Group reported loss from operations of Rp229 billion in 2Q2019 and Rp124 billion in 1H2019 compared to profit in the comparative periods in 2018. This was mainly attributable to significantly lower gross profit but partly offset by positive foreign exchange impact.

Financial Expenses: The Group's 2Q2019 and 1H2019 financial expenses increased by 29% and 31% respectively over the same periods in 2018 mainly due to higher working capital facilities and higher blended interest rate.

Income Tax Expense: The Group recognised lower income tax expenses in 1H2019 in line with lower operating performance. However, the effective tax rates remained high mainly due to non-deductible expenses and write-off of expired tax losses.

Net Loss After Tax: The Group reported higher net losses after tax of Rp393 billion in 2Q2019 and Rp523 billion in 1H2019 compared to the same periods in 2018. This was mainly due to weak operating profit and higher financial expenses.

The Group's core loss was Rp543 billion in 1H2019 versus a core profit of Rp72 billion in 1H2018.

Review of Financial Position

As of June 2019, total non-current assets of Rp31.0 trillion was slightly higher compared to Rp30.4 trillion in December 2018. The increase was mainly attributable to capital injections in associate companies (i.e. AIM and Daitocacao) of Rp358 billion, additions of fixed assets, advances for projects and plasma receivables.

The Group's total current assets declined slightly to Rp7.0 trillion as of June 2019 from Rp7.1 trillion in December 2018. The decrease was mainly due to (i) lower cash level; (ii) lower trade and other receivables; and (iii) lower CPO inventories. This was partly offset by higher advances for CPO purchases and prepayments.

Total current liabilities maintained at Rp9.2 trillion as of June 2019. The Group reported higher trade and other payables and accruals, but this was fully offset by lower short-term interest-bearing loans and borrowings.

Total non-current liabilities increased 13% to Rp8.6 trillion as of June 2019 compared to Rp7.6 trillion in last year end. This was mainly due to higher interest-bearing loans and borrowings following the renewal of a long-term facility in 1H2019 and higher employee benefits liabilities.

Review of Cash Flows

Despite soft operating results, the Group generated higher net cash flows from operations of Rp572 billion in 1H2019 compared to Rp105 billion in 1H2018. This was mainly due to improved working capital arising from lower inventories and trade and other receivables.

Net cash flows used in investing activities in 1H2019 was Rp1,423 billion compared to Rp1,066 billion in 1H2018 mainly attributable to additions of property, plant and equipment and investment in associate companies of Rp358 billion.

Net cash flows generated from financing activities were Rp528 billion in 1H2019. The increase was mainly due to the drawdown of short-term working capital facilities to fund the operations.

The Group's cash levels decreased from Rp2,229 billion at end December 2018 to Rp1,891 billion at June 2019.

Commentary

The ongoing US-China trade tensions continue to affect the global trade flows and economic growth. These uncertain global developments have negatively impacted the prices of agricultural commodities. Rotterdam CIF CPO prices decreased 11% to an average of US$533 per tonne in 1H2019 from US$601 per tonne in FY2018. CPO prices will remain volatile with demand projected from key import markets like China and India, together with the relative price of crude oil which affects biodiesel demand.

Against this backdrop of a volatile commodity price environment, we prioritise our capital expenditure investment in growth area and focus on cost control measures and other innovations to increase productivity.


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