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Financial PerformanceOverview: 1H2022 was a challenging period in the face of highly volatile commodity markets and several policies introduced by the Indonesian Government to control the domestic cooking oil prices. Despite this, the Group’s net profit increased 72% to Rp542 billion. The improvement in profitability was supported by stronger selling prices of palm products (i.e. crude palm oil (CPO) up 45% and palm kernel (PK) up 73%) and EOF products. This was partly offset by lower sales volume of palm products in line with lower production and a net build-up of 35,000 tonnes of CPO in 1H2022. The downstream refinery also reported lower sales volume due to lower export sales.
CPO prices rose to record highs earlier this year due to the Russia-Ukraine conflict and a temporary export ban by Indonesia which tightened the global edible oil supply. Despite lifting the export ban, Indonesia’s exports have not returned to normal levels as the government required companies to sell a portion of output in the domestic market before issuing export permits. This has led to higher CPO stocks in Indonesia and a slump in prices in June 2022. Nonetheless, CPO prices (CIF Rotterdam) remained higher at an average of US$1,638 per tonne in 1H2022 compared to US$1,128 per tonne in 1H2021.
Segment Overview: The Plantation Division’s 1H2022 revenue grew 22% mainly attributable to higher selling prices of palm products, partly offset by lower sales volume in line with lower production and a net build-up in inventories of 35,000 tonnes of CPO in 1H2022. Segment operating profit increased 41% to Rp1,291 billion compared to the same period last year.
The EOF Division’s 1H2022 revenue declined by 18% on lower sales volume of EOF products. Despite lower sales volume of EOF and higher CPO purchase costs, this Division maintained its profitability with segment operating profit of Rp196 billion in 1H2022.
Revenue: Despite higher average selling prices of palm products and EOF products, the Group reported Rp8,073 billion in 1H2022 consolidated revenue (after elimination of inter-segment sales), decreasing 10% over 1H2021 mainly due to lower sales from the EOF Division.
Cost of sales: Lower cost of sales was mainly due to lower purchases of CPO by the EOF Division in line with lower sales volume.
Gross profit: The Group’s 1H2022 gross profit improved by 7% compared to 1H2021, supported by higher selling prices of palm products and EOF products. This was partly offset by lower sales volume of palm and EOF products as well as higher CPO purchase costs.
Selling and distribution expenses (S&D): S&D expenses declined 57% to Rp206 billion in 1H2022 mainly due to lower export levy/duty and freight charges arising from lower export sales of EOF products.
Other Operating Expenses: Higher other operating expenses were mainly due to higher allowance for plasma receivables.
Foreign Exchange Gain: In 1H2022, the Group recognised a foreign currency gain of Rp8 billion mainly due to the translation of US dollar-denominated net assets position (i.e. cash and loans) as of 30 June 2022. The foreign currency gain was mainly due to weakening of Indonesia Rupiah against US Dollar to Rp14,848/US$ as of 30 June 2022 versus Rp14,269/US$ as of 31 December 2021.
Share of Results of Associate Companies: The Group reported lower loss from its associate companies in 1H2022 of Rp24 billion versus Rp33 billion in 1H2021.
Share of Results of Joint Ventures (JVs): The Group reported share of loss of JVs in 1H2022 of Rp36 billion versus share of profit of Rp29 billion in 1H2021. Despite our JV sugar operation in Brazil recorded higher operating profit, but this was offset by higher interest expenses and higher loss arising from changes in fair value of biological assets.
Loss arising from Changes in Fair Values of Biological Assets: In 1H2022, the Group reported higher loss from changes in fair value of biological assets of Rp108 billion compared to Rp34 billion in 1H2021. The loss in 1H2022 was mainly due to lower FFB prices and higher cost.
Profit from Operations: The Group’s profit from operations in 1H2022 increased 13% to Rp1,185 billion mainly due to higher gross profit and lower selling and distribution expenses. This was partly offset by higher provision for plasma receivables and higher loss arising from changes in fair value of biological assets.
Financial Expenses: The Group’s 1H2022 financial expenses decreased by 14% mainly due to lower blended interest rates and lower loans compared to 1H2021.
Income Tax Expenses: The Group recognised lower income tax expenses in 1H2022 mainly attributable to lower provision for tax losses carried forward. This was offset by higher corporate income tax in line with higher profit.
Net Profit After Tax (NPAT): The Group reported higher NPAT of Rp542 billion, increasing 72% over 1H2021. This was mainly due to higher profit from operations as explained above, lower financial expenses and lower income tax expenses. In line with this, core profit after tax came in 72% higher than 1H2021.
Attributable Profit to the Owners of the Company: 1H2022 attributable profit came in 65% higher than the same period last year.Review of Financial Position
As at 30 June 2022, the Group reported total non-current assets of Rp27.9 trillion compared to Rp28.1 trillion in December 2021. The decrease was mainly due to depreciation of property, plant and equipment and lower plasma receivables. This was partly offset by higher carrying value of investment in joint ventures.
The Group’s total current assets were Rp10.7 trillion as at June 2022 compared to Rp9.5 trillion in December 2021. This was mainly due to higher inventories (i.e. palm stocks, sugar and stearin), higher cash levels arising from improved operating cash flows, and higher advances for the purchase of raw materials. However, this was partly offset by lower trade and other receivables.
As at June 2022, the Group’s total liabilities increased 1% to Rp16.5 trillion mainly due to higher trade and other payables and accruals. This was partly offset by lower interest-bearing loans and borrowings due to certain loan repayment in 1H2022.
The Group’s net debt to total equity ratio decreased to 0.27 times as at June 2022 due to the combined effects of higher cash and lower gross debts, as compared to 0.31 times in prior year.Review of Cash Flows
The Group reported significantly higher operating cash flows before working capital of Rp2,783 billion, compared to Rp1,983 billion in 1H2021. However, the net cash flows from operation in 1H2022 were flat to last year mainly due to higher inventories, higher advances to supplies, and higher income tax paid.
Net cash flows used in investing activities were lower at Rp588 billion in 1H2022 compared to Rp599 billion in 1H2021 mainly due to lower plasma projects and advances for projects and fixed assets.
The Group recorded higher net cash used in financing activities of Rp329 billion in 1H2022 compared to last year mainly due to higher dividend payment, partly offset by lower net repayment of loans during 1H2022.
The Group’s cash level increased from Rp3,764 billion as at December 2021 to Rp4,194 billion as at June 2022 largely due to higher net cash flows from operations.
Commodity prices remain highly volatile due to geopolitical conflicts, supply chain disruptions, rising global protectionism risks and erratic weather patterns. We expect global vegetable oil prices to be underpinned by demand growth, biodiesel mandates and the slowdown in supply growth, especially palm oil.
We 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.