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Financial PerformanceOverview: Despite the continued impact of COVID-19 on the global economy, the Group reported a strong set of results with higher revenue and profitability in 2H2021 and FY2021. 2H2021 net profit after tax grew 31% to Rp965 billion, while FY2021 grew 683% to Rp1,280 billion compared to a year ago. The significant improvement in profitability was attributable to a strong turnaround in the Plantation Division on higher selling prices of palm products (i.e. crude palm oil (CPO) up 35% and palm kernel (PK) up 64%). However, the profit improvement was partly offset by higher export levy and duty in the EOF Division, impairment and write-off of property, plant and equipment, higher provision for plasma receivables and higher income tax expenses.
CPO prices recovered strongly from a low in mid-2020 following the onset of a La Nina event that reduced CPO supply. The production shortfall was coupled with improved CPO demand and tighter supply of soft oils such as soy oil and sunflower oil. CPO prices (CIF Rotterdam) rose to an average of USD1,210 per tonne in FY2021, compared to USD719 per tonne in FY2020.
Segment Overview: The Plantation Division's revenue in 2H2021 and FY2021 grew by 22% and 25% respectively on the back of higher selling prices of palm products, partly offset by lower sales volume of palm products in line with lower production. Segment operating profit increased 36% to Rp1.7 trillion in 2H2021, while FY2021 grew 119% to Rp2.7 trillion compared to a year ago. The significant profit improvement was mainly attributable to higher selling prices of palm products, and partly helped by improved productivity and cost control measures.
Total nucleus FFB production declined by 8% to 2,761,000 tonnes due to lower nucleus output as a result of replanting activities and adverse weather patterns, particularly heavy rainfalls in Indonesia had an impact on harvesting activities and crop production. The CPO production decreased by 7% to 687,000 tonnes, on lower FFB nucleus and purchase from external parties.
The EOF Division achieved steady performance with higher sales volume of EOF products. The EOF Division's revenue for 2H2021 and FY2021 grew by 49% and 42% respectively on the back of higher selling prices and sales volume. Despite higher CPO purchase costs and higher export duty and levy, this Division maintained its profitability with segment operating profit of Rp476 billion in FY2021. The strong results were bolstered by strong demand growth driven by home consumption, coupled with access to Indofood's distribution network.
Revenue: The Group's consolidated revenue (after elimination of inter-segment sales) in 2H2021 and FY2021 increased 41% and 36% over the same periods in last year, mainly due to higher selling price of palm and EOF products, as well as higher sales volume of EOF products.
Cost of sales: Higher cost of sales was mainly due to higher purchase prices and volume of raw materials i.e. CPO by the EOF Division.
Gross profit: In 2H2021 and FY2021, the Group's gross profit improved significantly by 55% and 74% compared to the same periods last year, supported by higher selling prices and partly offset by higher CPO purchase costs by the downstream refinery operation.
Selling and distribution expenses (S&D): S&D expenses increased 49% in 2H2021 and 71% in FY2021 mainly due to higher export levy and duty related to higher export sales of stearin and byproducts by the EOF Division.
General and administration expenses (G&A): : G&A increased 20% in 2H2021 mainly due to higher salary related costs. On full year basis, G&A remained under control with a moderate increase of 5% compared to a year ago.
Other Operating Expenses: The significant increase of other operating expenses in FY2021 was mainly due to impairment and write-off of property, plant and equipment of Rp493 billion, as well as higher provision for plasma receivables of Rp353 billion. The higher operating expenses in 2H2021 was likewise caused by these two items.
Foreign Exchange Loss: The foreign exchange impacts were principally attributable to the translation of US dollar denominated loans, assets and liabilities. In FY2021, the Group recognised a foreign currency loss of Rp2 billion compared to Rp45 billion in FY2020. The decrease in foreign currency loss was mainly due to weakening of Indonesia Rupiah against US Dollar to Rp14,269/US$ as of 31 December 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 FY2021 of Rp61 billion versus Rp249 billion in FY2020. The higher losses in FY2020 had been impacted by a recognition of Rp173 billion one-off impairment loss on assets and goodwill, and catch-up of depreciation relating to a sugar asset at Philippines.
Share of Results of Joint Ventures: The Group reported lower share of profit of JV in 2H2021 and in FY2021 compared to a year ago. Our JV sugar operation in Brazil recorded higher operating profit, but this was offset by higher interest expenses
Gain arising from Changes in Fair Values of Biological Assets: In FY2021, the Group recorded higher gain from changes in fair value of biological assets of Rp113 billion compared to Rp3 billion in FY2020. The gain in FY2021 was mainly due to higher FFB prices compared to a year ago.
Profit from Operations: In 2H2021, the Group's profit from operations increased 13% to Rp1,774 billion on higher gross profit. This was offset by higher S&D expenses and higher operating expenses as explained above. On full year basis, the Group reported a strong profit from operations, increasing 91% to Rp2,819 billion over a year ago. The improved profit was mainly due to higher gross profit, lower losses from associate companies and higher gain arising from changes in fair value of biological assets. This was partly offset by higher S&D expenses and other operating expenses.
Financial Expenses: The Group's financial expenses decreased by 12% in 2H2021 and 15% in FY2021 mainly due to lower blended interest rate and lower outstanding loan compared to the same periods last year.
Income Tax Expense: The Group recognised higher income tax expenses in FY2021 mainly attributable to higher taxable income in line with the improved performance.
Net Profit After Tax: The Group's net profit increased 31% to Rp965 billion in 2H2021, bringing FY2021 net profit to Rp1,280 billion. This was significantly higher compared to Rp164 billion in FY2020. The increase mainly due to higher profit from operations as explained above and lower financial expenses, but partly offset by higher income tax expense. Likewise, the Group's attributable profit to owners of the Company for FY2021 came in significantly higher at Rp755 billion compared to Rp20 billion in FY2020.Review of Financial Position
As at 31 December 2021, the Group reported total non-current assets of Rp28.1 trillion compared to Rp29.7 trillion in the previous year. The decrease was mainly due to lower property, plant and equipment arising from depreciation during the year and impairment loss recognised, lower deferred tax assets, lower carrying value of investment in joint ventures and lower plasma receivables.
The Group reported total current assets of Rp9.5 trillion as at December 2021 compared to Rp7.8 trillion in the previous year. This was mainly due to significantly higher cash level arising from improved operating cash flows, higher trade receivables, and higher advances for the purchase of raw materials.
The Group's current liabilities increased to Rp10.0 trillion from Rp9.2 trillion in the previous year. This was mainly due to higher current maturities of long-term loans and borrowings, as well as higher advances and other payables, and higher income tax payable. The Group reported lower net current liabilities of Rp0.4 trillion as at 31 December 2021 compared to Rp1.4 trillion a year ago mainly due to higher cash.
The Group's non-current liabilities decreased to Rp6.3 trillion from Rp7.8 trillion as at December 2020. The decrease mainly due to the reclassification of current maturities of long-term loans and borrowings to current liabilities.
The Group's net debt-to-equity ratio decreased to 0.31 times as at 31 December 2021, due to the combined effects of higher cash and lower gross debts, as compared to 0.44 times in the prior year.Review of Cash Flows
The Group generated higher net cash flows of Rp3.8 trillion from operations compared to Rp2.5 trillion in 2020, largely due to improved operational results.
Net cash flow in investment activities was Rp1.3 trillion as compared with Rp1.6 trillion in FY2020, due to lower additions of property, plants and equipment. Higher net cash outflow in financing activities of Rp1.1 trillion compared to Rp0.3 trillion in FY2020 was mainly due to the repayment of loans.
Overall, the effects of higher cash flows from operations and lower additions of property, plants and equipment have raised the Group's cash level to Rp3.8 trillion from Rp2.5 trillion in 2020.
The global recovery continues even as the pandemic resurges, but uncertainty has increased due to geopolitical risks, supply chain disruptions and worsening pandemic dynamics, coupled with erratic weather patterns. This will continue to have an impact on crop production and commodity prices. In addition, we expect global vegetable oil prices to be underpinned by demand growth, biodiesel mandates and the slowdown in supply growth, especially palm oil.
We expect commodity prices to remain volatile amid the uncertainties in global developments. We will continue to prioritise our capital investment on the replanting of older oil palm trees in Riau and North Sumatra, and on critical infrastructure. Other initiatives would include improving FFB yields through active crop management and improvements in fertiliser application through nutrient analysis, and pursuing relevant innovations and mechanisation to raise plantation productivity. We will continue to focus on cost control improvements and drive greater efficiency through digitalisation and streamlining of work processes.
An expansion programme for our main CPO refinery in Tanjung Priok is now underway, with completion scheduled for 2023. The boost in EOF production capacity would enable us to better capture the growing domestic demand and new opportunities. We will continue to rejuvenate the formats and packaging designs of our cooking oils to cater to evolving consumer needs. The current distribution system will be complemented by various digital and e-commerce platforms to increase market reach and penetration.