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Financial PerformanceOverview: Despite the continued impact of COVID-19 on the global economy, the Group reported a net profit after tax of Rp315 billion in 1H2021, reversing from a net loss of Rp575 billion in the same period last year. The significant improvement in profitability was attributable to a remarkable turnaround in the Plantation Division on higher selling prices of palm products (i.e. crude palm oil (CPO) and palm kernel (PK)).
CPO prices have recovered strongly from a low in mid-2020 following the onset of a La Nina event and reduced CPO supply, and coupled with improved demand and tighter supply of soft oils such as soy oil and sunflower oil. CPO prices (CIF Rotterdam) was at an average of US$1,128 per tonne in 1H2021, compared to US$655 per tonne in 1H2020.
In 1H2021, the Group's Plantation Division revenue increased 29% mainly attributable to higher selling prices of palm products. However, this was slightly offset by lower sales volume of CPO (-1%) and PK related products (-3%) in line with lower CPO production.
EOF Division's revenue improved by 35% in 1H2021 attributable to both higher selling prices and sales volume of EOF products. Despite higher CPO purchase costs and the challenging Covid-19 situation in Indonesia, this division continues to perform steadily with higher sales volume of EOF products and maintaining its profitability.
Revenue: The Group reported Rp8,958 billion in 1H2021 consolidated revenue (after elimination of inter-segment sales), increasing 30% over 1H2020 on higher selling prices of palm products (CPO +26% and PK +62%) and edible oils & fats (EOF) products, as well as higher sales volume of EOF products.
Cost of sales: Higher cost of sales was mainly due to higher purchases of fresh fruit bunches (FFB) from external parties in the Plantation Division, as well as higher purchases of raw materials i.e. CPO by the EOF Division on higher demand from the domestic market.
Gross profit: In 1H2021, the Group's gross profit improved significantly by 112% compared to 1H2020, bolstered by higher selling prices of palm products and EOF products, as well as higher sales volume of EOF products. This was partly offset by higher CPO purchase cost.
Selling and distribution expenses (S&D): S&D expenses increased 93% to Rp480 billion in 1H2021 mainly due to higher export levy and duty related to higher export sales of EOF products.
Other Operating Expenses: Other operating expenses increased 98% to Rp117 billion in 1H2021 compared to 1H2020 mainly due to higher allowance for uncollectible and loss arising from changes in amortised cost.
Foreign Exchange Gain/ (Loss): The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. In 1H2021, the Group recognised a foreign currency gain of Rp1 billion compared to Rp57 billion loss in 1H2020. The foreign currency gain was mainly due to strengthening of Indonesia Rupiah against US Dollar to Rp14,496/US$ as of 30 June 2021 versus Rp14,105/US$ as of 31 December 2020.
Share of Results of Associate Companies: The Group reported significant lower share of losses from its associate companies in 1H2021 of Rp33 billion versus Rp201 billion in 1H2020. The higher losses in 1H2020 had been impacted by a recognition of Rp163 billion one-off impairment loss on assets and goodwill, and catch-up of depreciation relating to a sugar asset at Philippines which previously classified as held for sale.
Loss arising from Changes in Fair Values of Biological Assets: In 1H2021, the Group reported lower losses from changes in fair value of biological assets of Rp34 billion compared to Rp147 billion in 1H2020. The loss in 1H2021 was mainly due to lower FFB volume. Meanwhile, the fair value loss of Rp147 billion in 1H2020 was mainly due to lower prices and production volume of FFB compared to a year ago.
Profit/ (loss) from Operations: The Group reported a marked turnaround in profit from operations, registering a profit of Rp1,045 billion in 1H2021 compared to loss of Rp90 billion in 1H2020 mainly due to higher gross profit, lower losses from associate companies and lower losses arising from changes in fair value of biological assets. This was partly offset by higher selling and distribution expenses.
Financial Expenses: In 1H2021, the Group's financial expenses decreased by 18% in 1H2021 mainly due to lower blended interest rate in line with lower benchmark interest rates and lower outstanding loan compared to 1H2020.
Income Tax Expense: The Group recognised higher income tax expenses of Rp438 billion in 1H2021 compared to Rp125 billion in 1H2020 mainly attributable to higher taxable income and higher deferred tax arising from provision for tax losses carried forward.
Net Profit/ (Loss) After Tax: The Group reported a profit of Rp315 billion in 1H2021 compared to a loss of Rp575 billion in 1H2020. This was mainly due to higher profit from operations as explained above and lower financial expenses, but this was partly offset by higher income tax expense.
The Group reported attributable profit to equity holders of Rp153 billion in 1H2021, compared to attributable loss of Rp429 billion in1H2020. Core profit was Rp475 billion in 1H2021 compared to a core loss of Rp37 billion in1H2020.Review of Financial Position
As at 30 June 2021, the Group reported total non-current assets of Rp29.2 trillion compared to Rp29.7 trillion in December 2020. The decrease was mainly due to lower property, plant and equipment arising from depreciation, lower deferred tax assets arising from lower provision for tax losses carried forward and lower investment in joint ventures. This was partly offset by higher prepayments of expenses.
The Group reported total current assets of Rp8.8 trillion as at June 2021 compared to Rp7.8 trillion in December 2020. This was mainly due to increase in cash arising from free cash flows generated from improved operational result during the period, and higher raw materials and finished products in the EOF Division.
The current liabilities of the Group were Rp10.4 trillion as at June 2021 compared to Rp9.2 trillion as at December 2020. This was mainly due to higher current maturities of long-term loans and borrowings, as well as higher trade and other payables and accruals.
As at June 2021, the non-current liabilities of the Group were Rp6.9 trillion compared to Rp7.8 trillion as at December 2020. The decrease mainly due to repayment of loan installments and the reclassification of current maturities of long-term loans and borrowings.
As at June 2021, the Group's net debt to total equity ratio decreased from 0.44 times as at December 2020 to 0.39 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 operating cash flows before working capital of Rp1,983 billion, compared to Rp1,307 billion in 1H2020. However, cash flows from operation in 1H2021 came in lower than 1H2020 mainly due to higher working capital and higher income tax paid.
Net cash flows used in investing activities were lower at Rp599 billion in 1H2021 compared to Rp726 billion in 1H2020 mainly due to lower additions of property, plant and equipment.
The Group recorded higher net cash out flows of Rp257 billion in financing activities in 1H2021 compared to Rp95 billion in 1H2020. This was mainly due to higher net repayment of loan during 1H2021.
The Group's cash level increased from Rp2,446 billion as at December 2020 to Rp3,055 billion as at June 2021 largely due to higher operating free cash flows.
The economic uncertainties arising from the COVID-19 pandemic, and erratic weather patterns will affect crop production and commodity prices. CPO prices are sensitive to 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.
Amidst the volatile commodity price environment, our focus in 2021 is to prioritise our capital investment in growth areas, particularly replanting on older oil palm plots in Riau and North Sumatra. Other initiatives include improvement of FFB yields through active crop management, cost controls and pursue innovations that can raise plantation productivity.