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Financial PerformanceOverview: FY2022 was a challenging year in the face of highly volatile commodity markets and several policies introduced by the Indonesian government to control domestic cooking oil prices. Prices of most agricultural commodities increased sharply in March/April 2022 due to the Russia-Ukraine conflict and tight South American soybean supplies arising from droughts in the early part of the year. This was further aggravated by the Indonesia government's temporary export ban on palm oil, which tightened the global edible oil supply. Consequently, the export ban led to higher CPO stocks in Indonesia and lower prices in June 2022. Despite lifting the export ban subsequently and cutting export levies to encourage exports, Indonesia’s palm oil exports did not return to normal levels as the government required companies to sell a portion of their CPO output in the domestic market before issuing export permits. Nonetheless, CPO prices (CIF Rotterdam) averaged higher at US$1,370 per tonne in 2022 compared to US$1,210 per tonne in 2021.
Despite a strong recovery in FFB production in 2H2022, the Group recorded a softer set of 2H2022 results on lower selling prices of palm products (i.e. crude palm oil (CPO) down 13% and palm kernel (PK) down 24% compared to 2H2021) and rising palm production costs. Net profit after tax declined 20% to Rp776 billion in 2H2022 mainly due to lower gross profit from the Plantation Division, loss on changes in fair value of biological assets and impairment of goodwill. The decline was partly negated by lower S&D expenses, lower impairment and write-off of property, plant and equipment. For the full year, the Group’s net profit after tax improved by 2% to Rp1,318 billion from Rp1,287 billion in FY2021. This was largely due to a higher profit contribution from the EOF Division.
Segment Overview: Plantation Division recorded a strong 10% recovery in FFB nucleus production in 2H2022, leading to FY2022 growth of 2%. This, coupled with higher purchases of FFB from external parties, enabled CPO production to grow strongly by 20% in 2H22 and 7% for the full year.
Plantation Division’s revenue increased 2% in 2H2022 due to higher sales volume of palm products in line with higher production, however this was partly offset by lower selling prices of palm products. Operating profit was lower in 2H2022 mainly due to higher production costs. On a full-year basis, plantation revenue increased by 11% on higher palm selling prices. Despite higher revenue and cost control measures, the division reported lower operating profit in FY2022 due to a net build-up in inventories of 40,000 tonnes of CPO and higher production costs.
The EOF Division’s refinery operations remained resilient. Despite lower sales volume for cooking oil due to policy changes and higher CPO input costs, it delivered higher profitability due to competitive pricing strategies and a recovery in industrial and consumer margarine sales following the gradual lifting of COVID-19 restrictions. Revenue declined by 25% in 2H2022 and 22% in FY2022 on lower sales volume of EOF products but was partly offset by higher selling prices. Despite this, it delivered higher operating profit in 2H2022 and FY2022.
Revenue: The Group’s consolidated revenue (after elimination of inter-segment sales) in 2H2022 and FY2022 decreased 9% and 10% over the same periods last year, mainly due to lower sales from the EOF Division.
Cost of sales: Lower cost of sales in 2H2022 and FY2022 was mainly due to lower CPO input costs by the EOF Division in line with lower EOF sales.
Gross profit: In 2H2022, the Group’s gross profit declined by 21% mainly due to higher palm production costs. For the full year, the Group’s gross profit declined by 10% despite higher average selling prices of palm products and EOF products. The decline was mainly due to a net build-up in year end inventories of 40,000 tonnes of CPO and rising palm production costs.
Selling and distribution expenses (S&D): S&D expenses declined 23% in 2H2022 and 42% in FY2022 mainly due to lower export levy/duty, and lower freight and distribution charges arising from lower sales volume of EOF products.
General and Administration Expenses (G&A): G&A decreased 9% in 2H2022 mainly due to lower salary and benefit costs. On a full-year basis, G&A costs remained under control and came in close to last year.
Foreign Exchange Gain: The Group recognised a foreign currency gain of Rp67 billion in FY2022 mainly due to the translation of US dollar-denominated net assets position (i.e. cash and loans) as of 31 December 2022. The foreign currency gain was mainly due to weakening of the Indonesia Rupiah against the US Dollar to Rp15,731/US$ as of 31 December 2022 versus Rp14,269/US$ last year-end.
Other Operating Expenses:The significant decrease in other operating expenses in FY2022 was mainly due to lower impairment and write-off of property, plant and equipment compared to last year. The lower other operating expenses in 2H2022 were likewise caused by these two items and lower provision for plasma receivables.
Share of Results of Associate Companies: The Group reported improved results from all its associate companies. The share of losses declined to Rp41 billion in FY2022 compared to Rp61 billion in FY2021.
Share of Results of Joint Ventures (JVs): The Group’s share of JV profit increased 17% in 2H2022, but full year results remained lower at Rp52 billion versus Rp104 billion in last year. Despite higher operating results, this was offset by higher interest expenses, foreign exchange loss and loss arising from changes in the fair value of biological assets.
Loss arising from Changes in Fair Values of Biological Assets: In FY2022, the Group reported a loss from changes in fair value of biological assets of Rp136 billion compared to a gain of Rp113 billion in FY2021. The loss in FY2022 was mainly due to lower FFB prices and higher production costs. The gain in FY2021 was mainly due to higher FFB prices compared to the year before.
Impairment of Goodwill:During the year, management has identified the existence of impairment indicators for certain subsidiaries. Management performed an impairment assessment and recorded an impairment loss on goodwill of Rp127 billion as the recoverable amount was lower than the carrying value for certain subsidiaries.
Profit from Operations: In 2H2022, the Group’s profit from operations decreased 8% to Rp1,644 billion on lower gross profit and loss from changes in fair value of biological assets. This decline was offset by lower S&D expenses and lower operating expenses as explained above. For the full year, profit from operations was flat to last year at Rp2,829 billion for similar reasons.
Financial Income/(Expenses): Higher financial income was related to fixed deposit income arising from higher cash levels. The Group’s financial expenses decreased by 8% in FY2022 mainly due to lower loans than last year.
Net Profit After Tax (NPAT): The Group reported a 20% decline in NPAT to Rp776 billion in 2H2022 due to lower operating profit and impairment of goodwill. Despite a softer 2H2022 performance, the Group’s FY2022 NPAT came in slightly higher than last year at Rp1,318 billion.
Attributable Profit to the Owners of the Company: FY2022 attributable profit came in close to last year at Rp770 billion.Review of Financial Position
As of 31 December 2022, the Group’s total non-current assets were Rp27.7 trillion compared to Rp28.1 trillion in December 2021. The decrease was mainly due to the depreciation of property, plant and equipment, lower plasma receivables, lower deferred tax assets and impairment of goodwill. This was partly offset by higher investment in joint ventures.
The Group recorded total current assets of Rp10.6 trillion as of December 2022 compared to Rp9.5 trillion in December 2021. The increase was mainly due to higher CPO inventories and higher cash levels, partly offset by lower trade receivables in line with lower EOF sales and lower biological assets.
The Group’s total liabilities decreased by 7% to Rp15.1 trillion. This was mainly due to (i) net repayment of interest-bearing loans and borrowings during the year; (ii) lower employee benefits liabilities, which were determined based on actuarial calculations in accordance with the Indonesian Labour Law; (iii) lower advances and taxes payable; and (iv) lower income tax payable. The decrease was partly offset by higher trade and other payables and accruals, and higher lease liabilities.
As of 31 December 2022, the Group recorded net current assets of Rp669 billion compared to a net current liabilities position in the last year-end. The improved position was mainly due to refinancing a short-term loan into a long-term loan.
The Group’s net debt-to-equity ratio decreased from 0.31 times last year-end to 0.20 times as of December 2022. The improved ratio was mainly due to the combined effects of higher cash and lower interest-bearing loans and borrowings.Review of Cash Flows
The Group continued to generate strong operating cash flows of Rp3,590 billion in FY2022 compared to Rp3,724 billion last year.
Net cash flows used in investing activities were close to last year’s level at Rp1,424 billion, mainly related to additions of property, plant and equipment, and bearer plants; and net investment in JV and associated companies.
The Group recorded net cash used in financing activities of Rp1,628 billion in FY2022 compared to Rp1,088 billion last year. This comprised mainly of net repayment of loans and dividend payments during the year.
The Group’s cash level increased from Rp3,764 billion as of December 2021 to Rp4,422 billion as of December 2022 largely due to a net increase in cash from operations.
Commodity prices are likely to remain highly volatile amid uncertainties driven by global developments. Specifically, ongoing tensions between the US and China could continue to impede the pace of global growth and recovery. Energy and commodity prices could escalate with geopolitical conflicts and rising protectionism. Climate change and weather patterns could have an adverse impact on plantation crops and operations.
In response to these events, we will continue prioritising capital expenditure on replanting in Riau and Sumatra, and critical infrastructure, and tighten cost controls. We will also continue to focus on crop management activities and explore relevant innovations and mechanisation programmes to raise plantation productivity.
In the year ahead, our refinery operations will be focusing on the growth and recovery of EOF sales volumes through competitive pricing strategies. We also expect to enter into the growing segment for affordable branded packed cooking oil in 2023. Efforts will also be supported by thematic advertising campaigns.