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Review of Group Performance
Revenue and Gross Margin: Group revenue grew 82% to Rp11.8 trillion, representing an increase of
Rp5.3 trillion as compared to a year ago (with consolidated results of Lonsum for only 2 months in
2007). The improvement in revenue was mainly due to higher palm oil prices and increased palm oil
sales volume. The sales volume of crude palm oil (CPO) in 2008 was 730 thousand metric tons, as
compared to 361 thousand metric tons in the previous year. This was mainly due to contribution from
Lonsum and organic growth. The cooking oil sales volume in 2008 grew by 14% to 424 thousand
metric tons driven by increased demand for consumer-pack cooking oil in the Indonesian market.
This growth was encouraging given the volatility of the CPO prices and the prevailing difficult market
conditions.
All our divisions achieved better revenue and operating profit (excluding fair value gain or loss on
biological assets) in 2008. Plantations Division again contributed more than 90% of our operating
profit. Overall gross profit margin for full year 2008 was 34.9%, better than 30.2% in the previous year.
Plantations Division registered total revenue of Rp6.8 trillion, up from Rp2.7 trillion a year ago (+154%)
mainly due to incremental contribution of Rp3.3 trillion from Lonsum and higher CPO volume growth.
Cooking Oils and Fats Division likewise recorded encouraging growth of 49% driven largely by higher
selling prices and volume growth in consumer pack cooking oil in the Indonesian market.
Commodities division posted revenue growth of 42% due to higher export volume of crude coconut oil
and increase in average selling price of copra-based and palm-based products.
Gain/(loss) arising from changes in fair values of biological assets: In accordance with the
Singapore Financial Reporting Standards ("SFRS") No. 41, "Agriculture", biological assets are stated
at fair value less estimated point-of-sale costs (estimated selling costs). Gains or losses arising from
the changes in fair values of the biological assets at each reporting date are included in the
consolidated income statement for the period in which they arise.
Notwithstanding the above, it is the practice of the Group to engage an independent firm of valuers to
prepare the valuation of the biological assets (which primarily comprise oil palm and rubber plantations)
on a semi-annual basis. The valuations were prepared based on the discounted net future cash flows
of the underlying plantations. The expected net future cash flows of the underlying plantations are
determined using the forecasted market prices of the related agricultural produce.
As a result of the significant decline in the prices of CPO during the second half of 2008 and the
prevailing overall adverse global economic conditions, the Group posted loss arising from changes in
the fair values of biological assets of Rp1,593 billion and Rp947 billion in the last quarter of 2008 and
on full year basis, respectively.
The significant fair value loss on biological assets are driven mainly by the natural gradual decline in
the fair values of biological assets over the years due to the realization of the projected cash flows;
and changes in assumptions used in the independent valuations particularly in projected CPO selling
prices and discount rate.
Profit from Operations: The Group achieved respectable profit growth in 2008 with operating profit
(excluding fair value gain or loss on biological assets) of Rp2.8 trillion compared to Rp1.4 trillion in last
year (+104.0%). This was principally on account of the strong CPO price during the first half of 2008,
positive contribution from Lonsum and better operating margin in cooking oil division. The improved
profit was however negated by (i) increased selling expenses arising from higher freight cost and
Indonesia export taxes of Rp156 billion, (ii) higher G&A expenses mainly due to the inclusion of new
subsidiaries and wage inflation; and (iii) higher other operating expenses resulting from net loss on
foreign exchange of Rp229 billion.
Profit Before Tax (PBT): PBT excluding non-cash items relating to fair value gain or loss on
biological assets and goodwill was Rp2.5 trillion, up from Rp1.4 trillion a year ago (+81.2%). The full
impairment of goodwill of Rp4.8 billion in 2008 was related to the new subsidiaries acquired in Dec
2008 (ie. TST). While the full impairment of goodwill of Rp76.3 billion in 2007 arose from the
difference between the deemed cost of acquisition and fair value of the Company's net assets at the
reverse acquisition date.
Net Profit After Tax (NPAT): The Group posted a NPAT of Rp1.1 trillion in 2008, up 7.3% compared
to last year. NPAT excluding the non-cash items relating to the fair value gain or loss on biological
assets (net of associated tax effects) and impairment of goodwill was Rp1.7 trillion, 86.7% higher than
last year.
The Group's net assets stood at Rp11.0 trillion as at 31 December 2008, increased by 11.8% from
Rp9.8 trillion a year ago. Net asset value per share improved by 11.4% to Rp5,506 as at 31
December 2008.
Total non-current assets increased from Rp14.9 trillion as at 31 December 2007 to Rp16.5 trillion as at
31 December 2008 due to:
2008 was a challenging year for oil palm plantation owners given the volatility in the CPO prices, which
started the year strongly and peaked at US$1,249 a ton (CIF Rotterdam) in March 2008. As the
global financial crisis triggered a major correction in commodities prices, CPO prices fell in the second
half of 2008 to end the year at US$503 a ton. In addition, the prices of raw materials, in particularly
fertilizers and fuels also increased substantially in 2008.
We expect 2009 to continue to be a volatile year for commodity prices. However, we have seen some
easing of the prices of raw materials at the beginning of 2009. We will continue to manage our
balance sheet and cash flows prudently, while exercising prudent cost management and investing
strategically in our future growth.
The strength of our integrated business model, and the growth of our plantation business together with
our low cost of production, positions us well to face the challenges ahead. Our operational strength
and commitment to research and development, and our world class seed breeding operations, will
enable us to continually implement and improve best practices for sustainable development of our
plantations.
