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Review of Group Performance
Overview: The effects of the El Nino in 2015 has affected upstream production as fresh fruit bunches (FFB) and crude palm oil (CPO) fell 13% and 17% to 2,981,000 tonnes and 833,000 tonnes respectively.
Despite lower palm production, the Group reported a positive set of results for FY2016 which was mainly attributable to a strong recovery in average selling prices of agriculture crops in 4Q2016. The Group's consolidated revenue rose 5% to Rp14.5 trillion in FY2016, and net profit attributable to equity holders increased to Rp507 billion compared to net losses of Rp48 billion a year ago. The improved result is attributable to recovery of commodity prices, higher other operating income, lower losses from the joint venture CMAA, higher biological assets gains and foreign currency gains.
Revenue: The Group reported consolidated revenue (after elimination of inter-segment sales) of Rp4.3 trillion in 4Q2016, growing 13% over Q42015 on higher sales from both divisions. On a full year basis, consolidated revenue grew 5% to Rp14.5 trillion mainly on strong sales from the Edible Oils & Fats (EOF) Division.
Plantation Division reported a 9% revenue growth in 4Q2016 on significantly higher selling prices of CPO and palm kernel (PK) related products which more than offset weaker palm output. On a year-to-date basis, revenue came in close to FY2015 on higher average selling prices of palm products and higher sugar sales, but this was offset by lower sales volume of palm products and rubber.
EOF Division continued to perform well with revenue growing 15% in 4Q2016 and 14% in FY2016 mainly attributable to strong sales volume and higher average selling price of edible oil products.
Gross Profit: The Group's gross profit grew 60% and 18% in 4Q2016 and FY2016. The improved gross profit mainly attributable to higher average selling prices of palm products and sugar, which was partly offset by lower sales volume.
Selling and Distribution Expenses (S&D): The Group reported significantly lower S&D in 4Q2016 of Rp121 billion compared to Rp200 billion in 4Q2015, this was mainly due to higher advertising and promotion expenses and export tax incurred in last year. On a full year basis, S&D maintained at last year's level.
General and Administration Expenses (G&A): The Group's G&A reported higher G&A in 4Q2016 of Rp263 billion compared to Rp242 billion in 4Q2015. The increase was mainly attributable to higher salaries and employee benefits.
Other Operating Income: Higher other operating income in 4Q2016 and FY2016 were mainly due to the recognition of Rp107 billion damages claim from a contractor for a significant delay in the completion of a turn-key project.
Other Operating Expenses: Higher other operating expenses in 4Q2016 were mainly attributable to the provision for unrecoverable advances, this was partly offset by a lower provision for uncollectible and changes in amortised cost of plasma receivables.
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 losses of Rp97 billion in 4Q2016 compared to gains of Rp192 billion in 4Q2015 as the Indonesian Rupiah weakened during the quarter. On a full year basis, the Group reported foreign currency gains of Rp94 billion compared to losses of Rp290 billion in FY2015 as the Indonesian Rupiah strengthened against the US Dollar (Rp13,436/US$ as of 31 December 2016 versus Rp13,795/US$ in last year end).
Share of Results of Associate Companies: The Group recognized share of losses from associate companies of Rp67 billion in FY2016 compared to Rp60 billion in FY2015. The higher losses were mainly attributable to FP Natural Resources Limited, a 30% associate of the Company which in turn owns 59.7% 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 Rp39 billion in 4Q2016 On full year basis, share of losses from CMAA was significantly lower at Rp33 billion compared to Rp172 billion in FY2015. The improved results were attributable to higher prices of sugar and ethanol.
Gain Arising from Changes in Fair Values of Biological Assets: The Group recognized gains of Rp99 billion in 4Q2016 and Rp219 billion in FY2016 mainly relating to net changes in fair values of agriculture produce. The gains were mainly attributable to higher volume and higher average selling prices of agriculture crops.
Profit from Operations before Biological Assets Gain: In 4Q2016, Profit from Operations grew 79% mainly on higher gross profit and other operating income, but partly offset by foreign currency losses. On full year basis, Profit from Operations grew 129% on higher gross profit, higher other operating income, lower losses from the joint venture CMAA, and foreign currency gains.
EBITDA exclude forex gain/ (loss): Group recorded EBITDA growth of 112% in 4Q2016 and 34% in FY2016. This was mainly due to higher gross profit on significantly higher average selling prices of palm products, higher other operating income and lower losses from a joint venture, CMAA.
Income Tax Expense: The high effective tax rates of 52% in 4Q2016 and 53% in FY2016 respectively 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 After Tax (NPAT): The Group's NPAT grew 73% to Rp492 billion in 4Q2016. On full year basis, NPAT increased to Rp792 billion from Rp37 billion a year ago. The strong results were primarily due to higher profits from operations as explained above, but partly offset by higher effective tax.Review of Financial Position
As of December 2016, total non-current assets of Rp29.7 trillion were slightly higher than the previous year end. The increase was due to higher plasma receivables and higher carrying value in CMAA, but this was partly offset by lower carrying value of investment in associate companies due to share of losses, lower advances for projects, and lower deferred tax assets.
The Group reported total current assets of Rp6.8 trillion in December 2016, which were Rp1.2 trillion higher than the previous year end. The increase was mainly attributable due to (i) higher inventories arising from higher CPO and palm kernel related stocks at plantation; (ii) higher other current assets; (iii) higher advances to suppliers for the purchase of raw materials; and (iv) significantly higher cash levels arising from higher cash flows generated from operations.
As of December 2016, total current liabilities of Rp4.7 trillion were 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 and lower trade payables. This was partly offset by higher income tax payable and advances from customers for purchases of goods.
Total non-current liabilities of Rp11.0 trillion in December 2016 were 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 higher net cash flows from operations of Rp2.0 trillion in FY2016 compared to Rp1.5 trillion in FY2015. This was mainly arising from recovery of operating performance.
Net cash flows used in investing activities in FY2016 was Rp1.6 trillion, which comprised principally capital expenditure relating to additions of fixed assets, bearer plants, advances for plasma projects and the investment in a tea plantation. The investing activities were mainly funded by cash flows from operations.
In FY2016, the Group reported a positive free cash flow of Rp0.4 trillion compared to a negative free cash flow in last year. The Group also maintained its debt level with no additional net cash flows from financing activities in FY2016. As a result, the Group's cash levels increased by Rp0.4 trillion to Rp2.4 trillion in December 2016.
Whist we are upbeat about 2017, agricultural commodity prices remain volatile on a soft global economy particularly China and fluctuations of Indonesian Rupiah and US Dollar. These circumstances will continue to aggravate 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 economic outlook for Indonesia, with the ongoing fiscal reforms and strong domestic consumption.
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.