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Overview: CPO prices collapsed at the start of 2020 due to lower fuel and biodiesel demand as a combined result of global lockdowns and movement control measures, and oil price war between OPEC and Russia. However CPO prices recovered in the second half of the year due to tight supplies, stronger demand and increased prices of competing vegetable oils. CPO prices (CIF Rotterdam) was at an average of USD719 per tonne in FY2020, as compared with USD572 per tonne in FY2019.
Amid challenging market conditions and the pandemic in FY2020, the Group reported an improved set of result with higher revenue and profit, supported by higher selling prices of palm and edible oil products.
The Group reported net profit after tax of Rp164 billion in FY2020, reversing from net loss of Rp710 billion in FY2019. The significant improvement was largely due to higher gross profit arising from higher selling prices and lower G&A expenses. This was partly offset by share of non-recurring losses of an associate, lower biological gain and higher income tax expense.
Revenue: In FY2020, the Group's consolidated revenue (after elimination of inter-segment sales) increased 6% to Rp14,475 billion despite challenging market conditions and COVID-19, mainly due to higher selling prices of palm products (CPO +24%, PK +21%) and EOF products. This was partly offset by lower sales volume of palm products and EOF products.
Plantation Division's revenue increased 2% in FY2020 mainly attributable to higher selling prices of palm products. This was partly offset by lower sales volume of CPO in line with lower production.
Our fresh fruit bunches (FFB) nucleus production declined 9% due to adverse weather conditions and replanting activities. The same weather conditions also affected our plasma smallholders, leading to a 12% decline in our CPO production.
EOF Division's revenue grew by 12% in FY2020 mainly attributable to higher selling prices. The EOF Division was affected by lower demand from HORECA (hotels, restaurants and catering). The Division's consumer cooking oils and margarine products recorded positive growth, this was driven by more families cooking and dining at home during the pandemic.
Cost of sales: Lower cost of sales was mainly due to lower sales volume of palm products and edible oil products.
Gross profit: The Group's gross profit improved significantly by 44% compared to FY2019 mainly driven by higher prices of palm products and EOF products.
General and Administrative Expenses (G&A): G&A expenses decreased 23% in FY2020 mainly due to lower salaries and related costs, and lower travelling expenses arising from movement control measures.
Other Operating Expenses: Lower other operating expenses against prior year was mainly due to lower allowance for uncollectible and loss arising from changes in amortised cost of Rp84 billion. In FY2019, the Group recognised an impairment of asset and goodwill of Rp81 billion.
Foreign Exchange (Loss)/ Gain: The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. In FY2020, the Group recognised a foreign currency loss of Rp45 billion compared to Rp11 billion gain in FY2019. The foreign currency loss was mainly due to weakening of Indonesia Rupiah against US Dollar to Rp14,105/US$ as of 31 December 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 FY2020, largely relating to the loss-making sugar assets in Philippines. The Group recognised Rp173 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: In FY2020, the Group reported higher share of profit of Rp127 billion compared Rp17 billion in FY2019. This was mainly due to higher prices of sugar and ethanol, and higher sales volume of sugar. In the 2020 crushing season, our Brazilian mills achieved a record crushing of 7.65 million tonnes of sugar cane compared to 6.1 million tonnes in 2019 season. The increase was contributed by our fully rehabilitated Cánapolis mill which started operations in 2020, as well as higher crushing recorded by the existing two mills.
Gain arising from Changes in Fair Values of Biological Assets: The Group reported Rp3 billion gain arising from changes in fair value of biological assets in FY2020 as a result of higher FFB prices. In FY2019, the biological assets gain of Rp190 billion was mainly due to higher prices and production volume of FFB compared to a year ago.
Profit from Operations: The Group reported higher profit from operations of Rp1,479 billion compared to profit of Rp507 billion mainly due to higher gross profit and lower G&A expenses. This was partly offset by higher share of non-recurring losses of an associate and lower biological gain.
Financial Income: The Group's financial income decreased 18% in FY2020 mainly due to lower fixed deposit income.
Financial Expenses: The Group's financial expenses decreased by 13% in FY2020 mainly due to lower blended interest rate in line with lower benchmark interest rates.
Income Tax Expense: The Group recognised higher income tax expenses of Rp643 billion in FY2020 compared to Rp446 billion in FY2019, largely due to deferred tax adjustments as a result of tax rate revision in Indonesia and higher corporate income tax arising from higher taxable income.
Net Profit/ (Loss) After Tax: In FY2020, the Group reported a profit of Rp164 billion compared to a loss of Rp710 billion in FY2019. This was mainly due to higher profit from operations as explained above and lower financial expenses, but partly offset by higher income tax expense.
The Group reported attributable profit to equity holders of Rp20 billion, as compared with attributable loss of Rp411 billion in FY2019. Core profit was Rp695 billion in FY2020 compared to a core loss of Rp585 billion in last year.Review of Financial Position
The Group reported total non-current assets of Rp29.7 trillion as at December 2020 compared to Rp30.8 trillion in December 2019. The decrease was mainly due to lower property, plant and equipment, lower deferred tax assets arising from lower tax losses carried forward, lower carrying value of investment in associate companies and joint ventures, and lower advances.
As at December 2020, the Group reported total current assets of Rp7.8 trillion compared to Rp6.8 trillion as at December 2019. This was mainly due to increase in cash balances arising from higher cash flows generated from operating activities, and higher CPO and stearin stock in the refineries.
The current liabilities of the Group maintained at Rp9.2 trillion. There were higher trade and other payables and accruals, and income tax payable which offset by lower short-term interest-bearing loans and borrowings as a result of the refinancing of certain short-term facilities to long-term facilities.
The Group reported lower net current liabilities of Rp1.4 trillion in December 2020 compared to Rp2.4 trillion in December 2019 mainly due to higher cash and lower proportion of short-term interest-bearing loans and borrowings as at December 2020.
The Group total non-current liabilities decreased 5% from Rp8.3 trillion as at December 2019 to Rp7.8 trillion as at December 2020. The decrease was mainly due to lower employee benefits liabilities which were determined based on the actuarial calculations in accordance with the provisions of the Indonesian Labor Law.
As at December 2020, the Group's net debt to total equity ratio decreased from 0.48 times as at December 2019 to 0.44 times. This was mainly due to the combined effects of higher cash and lower gross debts compared to prior year end.Review of Cash Flows
The Group reported higher cash flows from operation of Rp2,539 billion in FY2020 compared to Rp1,663 billion in FY2019 arising from improved operational results.
Net cash flows used in investing activities were lower at Rp1,575 billion in FY2020 compared to Rp2,589 billion in FY2019. The decline was largely due to lower additions of property, plant and equipment in 2020, as well as no investments made in 2020 compared to Rp448 billion in 2019.
The Group recorded net cash outflows of Rp314 billion in financing activities in FY2020 compared to cash flows generated from financing activities of Rp505 billion in FY2019. This was mainly due to net repayment of loan instalments during FY2020.
The Group's cash level increased from Rp1,787 billion as at December 2019 to Rp2,446 billion as at December 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 COVID-19 outbreak, as well as erratic weather patterns will affect crop production and commodity prices. CPO prices are sensitive to the demand of key import markets, like China and India, together with Indonesia's domestic demand growth and biodiesel mandate, the demand of substitutes such as soy oil, and the movement of crude oil prices which affect discretionary biodiesel demand.
The roll-out of COVID-19 vaccination programmes world-wide could potentially improve consumer confidence and demands. Amidst the volatile commodity price environment, our focus in 2021 is to prioritise our capital investment in growth areas, improve cost control, and pursue innovations that can raise plantation productivity. Other planned activities include replanting on older oil palm plots in Riau and North Sumatra, increase FFB yields through active crop management, and maximise asset utilisation by increasing mechanisation. In anticipation of more FFB production from newly developed areas, we are expanding production capacity in East Kalimantan with the construction of a 45-tonnes-per-hour FFB mill which will be ready in 2021.
At the end of September 2020, we completed a legal restructuring exercise to consolidate the sugar assets and operations in Brazil under CMAA, and all the freehold land assets under a real estate company, Bússola. Both CMAA and Bússola are 50:36.21:13.79 joint ventures held by JF Family, the Group and Rio Grande, respectively. The restructuring will help to strengthen CMAA's balance sheet.