ANNUAL REPORT 2023 Staying Resilient to Weather Global Challenges
ATA GLANCE Indofood Agri Resources Ltd. (IndoAgri) is a vertically integrated agribusiness group with activities spanning the entire supply chain from research and development (R&D), seed breeding, oil palm cultivation and milling, as well as the production and marketing of cooking oil, shortening and margarine. Headquartered in Singapore, we are among the largest palm oil producers in Indonesia. Our branded cooking oil, shortening andmargarine products together garner a leading share in the domestic market. As a diversified agribusiness group, IndoAgri also engages in the cultivation of sugar cane, rubber and other crops. OUR VISION To become a leading integrated agribusiness, and one of the world-class agricultural research and seed breeding companies. OUR VALUES With discipline as the basis of our way of life; we conduct our business with integrity; we treat our stakeholders with respect; and together we unite to strive for excellence and continuous innovation. OUR MISSION To be a low-cost producer, through high yields and cost-effective and efficient operations. To continuously improve our people, processes and technology. To exceed our customers’ expectations, whilst ensuring the highest standards of quality. To recognise our role as responsible and engaged corporate citizens in all our business operations, including sustainable environmental and social practices. To continuously increase stakeholders’ value.
FINANCIALS 54 Directors’ Statement 57 Independent Auditor’s Report 63 Consolidated Statement of Comprehensive Income 64 Balance Sheets 66 Consolidated Statement of Changes in Equity 68 Consolidated Cash Flow Statement 70 Notes to the Financial Statements OTHER INFORMATION 162 Interested Person Transactions 163 Estate Locations 165 Statistics of Shareholdings 167 Notice of Annual General Meeting Proxy Form CONTENTS GROUP OVERVIEW 2 Our Milestones 4 Geographical Presence 6 Corporate Structure 7 Chairman’s Message 8 CEO’s Message OPERATION AND FINANCIAL REVIEW 12 Group Performance Review 16 Plantation Review 22 Edible Oils & Fats Review SUSTAINABILITY AND GOVERNANCE 26 Sustainability at IndoAgri 29 Board of Directors 32 Corporate Information 33 Corporate Governance 1 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
07 • Reverse takeover and listing on SGX • Acquisition of plantation land in South Sumatra and Kalimantan • Acquisition of 58.8% stake in PT PP London Sumatra Indonesia Tbk (Lonsum) 08 • Diversification into sugar business with 60% stake in PT Laju Perdana Indah • Acquisition of plantation land in South Sumatra and Central Kalimantan 09 • Acquisition of plantation land in South Sumatra 10 • Divestment of 8% stake in Lonsum, of which 3.1% was sold to PT Salim Ivomas Pratama Tbk (PT SIMP) 11 • Listing of PT SIMP on IDX 12 • Acquisition of 26.4% stake in Heliae, a development-stage algae technology solutions company 13 • Acquisition of 79.7% interest in PT Mentari Pertiwi Makmur, an industrial timber plantation company • Acquisition of 50.0% stake in Companhia Mineira de Açúcar e Álcool Participações (CMAA), a sugar and ethanol company in Brazil • Formation of FP Natural Resources Limited, a 30:70 JV to invest 34% in Roxas Holdings Inc. (Roxas), an integrated sugar business in the Philippines • 7% of nucleus Crude Palm Oil (CPO) production was Indonesian Sustainable Palm Oil (ISPO)-certified OUR MILESTONES GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 2
14 • Formation of PT Prima Sarana Mustika, a 40:60 JV for road construction and leasing of heavy equipment • Expansion of sugar business via the acquisition of PT Madusari Lampung Indah 15 • 24% of nucleus CPO production was ISPO-certified 16 • Acquisition of PT Pasir Luhur, a tea plantation company • 39% of nucleus CPO production was ISPO-certified 17 • Formation of PT Indoagri Daitocacao, a 49:51 JV to manufacture and market chocolate products • 57% of nucleus CPO production was ISPO-certified 18 • Formation of Canápolis Holding S.A. (Canápolis), a 50:50 JV to acquire a second sugar and ethanol mill in Brazil • Acquisition of Vale do Pontal Açucar e Alcool Ltda (UVP), a sugar and ethanol mill operator in Brazil, turning CMAA into a 35:35:30 JV • 62% of nucleus CPO production was ISPO-certified 19 • Commencement of operations at the newly completed chocolate factory • 71% of nucleus CPO production was ISPO-certified 20 • Restructuring of sugar operations in Brazil, with IndoAgri owning 36.21% of CMAA and Bússola • 78% of nucleus CPO production was ISPO-certified 21 • 86% of nucleus CPO production was ISPO-certified 3 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
GEOGRAPHICAL PRESENCE INDONESIA 27 5 2 Mills & Refineries Refineries Mills 7.2m Tonnes of FFB Per Year Capacity 1.7m Capacity Tonnes of CPO Per Year 2.2m Capacity Tonnes of Cane Crushing Per Year Palm Oil Mills CPO Refineries Sugar Mills/Refineries MALAYSIA INDONESIA RIAU NORTH SUMATRA SOUTH SULAWESI EAST JAVA JAKARTA CENTRAL JAVA SOUTH SUMATRA WEST JAVA NORTH SULAWESI WEST KALIMANTAN CENTRAL KALIMANTAN EAST KALIMANTAN SINGAPORE SOUTH EAST ASIA INDONESIA IndoAgri owns strategically located estates and production facilities across Indonesia. The Group’s planted area occupies 293,429 hectares. Oil palm is the dominant crop, followed by sugar cane, rubber and other crops. Our plantations are largely located in Sumatra and Kalimantan, while our refineries are mainly sited at major cities including Jakarta, Medan, Surabaya and Bitung. Oil Palm 244,337 Sugar Cane 13,384 Rubber 16,238 Other crops 19,470 Planted Area (Ha) GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 4
LEGEND R&D Centre Oil Palm Estate Sugar Cane Estate Rubber Cocoa CPO Refinery Palm Oil Mill Sugar Mill & Refinery Tea Timber Sugar and Ethanol Mill BRAZIL Sugar and Ethanol Mills 3 9.7m Capacity Tonnes of Cane Crushing Per Year Mills SOUTH AMERICA MINAS GERAIS BRAZIL IndoAgri has 36.21% in CMAA, which operates three sugar and ethanol mills. BRAZIL 5 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
CORPORATE STRUCTURE (As at 31 December 2023) NOTES: • IndoAgri is 72.9% effectively owned by PT Indofood Sukses Makmur Tbk (PT ISM) • Shareholding percentage is calculated based on total number of issued shares (excluding treasury shares of the Company) Bússola 73.5% 59.5% 36.2% GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 6
DEAR SHAREHOLDERS, In contrast to the turbulence in some other parts of the world, South-East Asia continues to enjoy peace and stability. Emerging from the pandemic, Indonesia, the largest economy in the region, performed remarkably well in 2023. Its GDP grew by more than five percent. More jobs were created. Many people were lifted into the middle class. Their spending power grew. For IndoAgri, our strategic focus was centred on managing capital expenditure and yield improvements. We were rewarded by our efforts in competitive pricing and sustainable product packaging. Although our Group recorded lower profitability in 2023 mainly due to the lower selling price of palm and EOF products, the decline was offset by the higher sales volume of palmproducts. Our inherent strengths as a large-scale producer, coupled with our vertically integrated business model, have been pivotal to this performance. We support environmental, social and governance (ESG) principles and put them into practice. Our sustainability commitment is intricately woven into the fabric of our agribusiness operations. We take seriously the climaterelated risks. During the year, we took further steps to align our activities with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We have done weather-scenario planning and identified the physical and transitional risks associated with climate change. We are now in a better position to take both mitigative and adaptive measures. Succession planning and board renewal are critical to the development and growth of the Company. Independent directors, Lim Hock San, Goh Kian Chee and myself will retire from the Board at the AGM in April 2024. To ensure continuity, Goh Kian Chee will be nominated as a nonindependent and non-executive Director. IndoAgri is committed to good corporate governance. I have full confidence in IndoAgri’s strength and vitality. Through the adoptionof technological innovations, enhanced connectivity and higher productivity, our growth trajectory will remain steady andpositive. Wewill leverage on Indonesia’s sound economic fundamentals and its policies aimed at joining the premier league of economies. IndoAgri will grow with Indonesia. I have had the privilege and honour to serve you as the Chairman of the Board. May I extend my deep appreciation and gratitude to all our shareholders, my fellow directors, colleagues and partners for their steadfast support. This will enable IndoAgri to flourish and prosper. EDWARD LEE Chairman CHAIRMAN’S MESSAGE 7 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
Despite these efforts, the Group recorded lower profitability in 2023 mainly due to lower selling prices of palm and EOF products. However, the decline was partly offset by higher sales volume of palmproducts. Net profit after tax contracted by 29% to Rp936 billion in 2023. NAVIGATING UNCERTAINTIES The Plantation Division faced challenges, evidenced by a flattish FFB nucleus production and lower external FFB purchases, anda consequent 4% reduction inCPOproduction. The lower CPO selling prices impacted the Plantation Division’s revenue and profits despite an increase in sales volume from the realisation of the previous year-end’s CPO stocks and tightened cost-control measures. Over in Brazil, CMAA processed 9.45 million tonnes of sugar cane. Our share of the joint ventures’ profit more than doubled to Rp133 billion in 2023, driven largely by higher raw sugar sales volume and prices, partly offset by reduced ethanol sales and higher income tax expenses. The R&D team bolstered the Division’s capabilities by developing new and high-yielding seed varieties with distinctive traits. Achievements included the identification of molecular markers for differentiating fruit types, and the cultivation of palm seeds with elongated stalks to aid mechanised harvesting. Similarly, our proprietary high-yield cane varieties showed promising commercial viability, underscoring their potential in boosting production. The EOF Division remained profitable despite reduced cooking oil sales due to domestic policy changes. The success was underpinned by competitive pricing strategies, which allowed us to stay profitable through regular price adjustments. Targeting the loyalty of middle-income consumers for our branded cooking oils, we refreshed the Bimoli television commercial (TVC), elevated visibility in the modern trades DEAR SHAREHOLDERS, The year 2023 posed a complex array of challenges for agribusiness operators, marked by the interplay of suppressed commodity prices, unpredictable weather patterns and rising costs. A significant factor was the decline in soybean oil prices, triggered by an unexpected surge in Brazilian soybean crops. This exerted a downward pressure on prices of competing edible oils, such as palm oil, and as a result, CPO prices (CIF Rotterdam) averaged at USD972 per tonne in 2023, down by 29% from USD1,370 per tonne a year ago. For producers in Indonesia, the dynamics were intricate. Despite a lower FFB harvest, CPO prices did not recover until late in the year, when diversions of palm oil into Indonesia’s B35 biodiesel mandate tempered with the global oversupply of soybean oil. The sugar market, however, was volatile with dramatic price fluctuations. InDecember 2023, the price of sugar contracted from a high of 27 cents to 20 cents USD a pound in a matter of weeks. This was attributable to approximately 2 million tonnes of additional sugar production in Brazil at the end of the harvesting season, and an estimated additional 1.5 million tonnes of sugar from India due to changes in the ethanol mandate. Added to these was the rising cost of energy and general inflation, which are key concerns for plantation owners. In response, we maintained our tight cost controls and costeffective initiatives, and prioritised bank loan repayments to lower interest expenses. Reflecting on our efforts in 2023, we chose to theme this annual report “StayingResilient toWeather Global Challenges”. Prudent financial management, coupled with the ability to adapt to complex market dynamics, had been central to IndoAgri’s stability and resilience. CEO’S MESSAGE GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 8
and expanded our shelf space. This was in addition to supporting the national programme for affordable cooking oils packaged under the government’s MinyaKita brand for lower-income households. To connect with our B2B customers, we held cooking demonstrations and conducted a roadshow across 34 cities to introduce recipe ideas and showcase the versatility of our industrial margarines and shortening. ADVANCING OUR ESG AND TCFD COMMITMENTS As we continue to navigate our agribusiness landscape, our commitment to ESG principles, and our proactive measures underlying the TCFD, have been resolute. Recognising the climate crisis as both a risk and an opportunity, IndoAgri aspires to understand and mitigate its impact. Today, our strategy for managing climate-related risk factors like water scarcity and unpredictable weather patterns encompasses both mitigation and adaptation. Efforts include improving infrastructure, reducing risks of flooding, enhancing energy efficiency, increasing renewable energy use and reducing greenhouse gas emissions. Our R&D programmes extend to developing seed progenies that are resilient to extreme weather conditions. Although it has been a year since we adopted the TCFD framework, in practice, climate-related risks have long been integral to our enterprise risk management (ERM) processes. In 2023, we expanded our ERM framework to include additional physical and transitional risks, thereby improving our ability to identify, assess, manage and monitor our climate-related risks. The ERM team has been working closely with the research, sustainability and operational teams to embed a risk assessment matrix, where the financial and operational impacts are captured, in our mitigative actions. Furthermore, we have continued to diligently track and address our material issues, ensuring that our sustainability programmes are effectively implemented. Our ISPO-certified production was 493,000 tonnes in 2023, representing 85% of our total nucleus CPO production. In Brazil, CMAA achieved Bonsucro certification for 3.5 million tonnes of sugar cane in 2023, accounting for 73% of its total cane production. LOOKING AHEAD Commodity prices are expected to remain highly volatile amid uncertainties fromweather conditions and geopolitical conflicts. Demand is likely to remain subdued due to weaker economic growth and challengingmacroeconomic factors, such as high inflation and interest rates. Our Plantation Division will maintain its emphasis on costcontrol improvements, pursuing innovations that elevate plantation productivity, and prioritising capital investments in critical areas. Efforts will be supported by optimising our manpower resources, reviewing the financing structure to strengthen our financial position, as well as the ongoing mechanisation and IT initiatives. Our refinery operations FFB loading 9 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
will be focusing on the growth of EOF sales volumes through competitive pricing strategies. We will continue to drive volume through thematic advertising campaigns, aimed at enhancing in-store product visibility and reinforcing our cooking oil and margarine brands. BOARD CHANGES AND ACKNOWLEDGEMENTS In 2023, the Nominating Committee (NC) noted that all the Independent Directors had each served on the Board for more than nine years. Taking into consideration the SGX ruling regarding Independent Directors who have served for more than nine years, Mr Hendra Susanto relinquished his directorship during the last AGM in April 2023. Meanwhile, Messrs Edward Lee, Lim Hock San and Goh Kian Chee will be relinquishing their independent board appointments at the upcoming AGM in April 2024. The NC, in consultation with the controlling shareholder, will manage this closely to ensure a seamless leadership transition. As we approach this change, I want to extend my deepest gratitude to Edward, Hock San and Kian Chee for their invaluable contributions and insightful guidance throughout their tenure. Their efforts have been instrumental in shaping the strategic direction and success of the Company since our IPO. I am deeply grateful for their service and wish them the very best in their future endeavours. To ensure continuity, especially for the Audit and Risk Management Committee, Kian Chee will be nominated as a non-independent and non-executive Director. I would also like to express my appreciation to the Directors who will continue to serve with me on the IndoAgri Board. Their commitment and expertise will be invaluable as we navigate the future together. To my capable colleagues across Indonesia, Singapore and Brazil, a heartfelt thank you for your hard work and dedication. Last but not least, I would like to thank all our smallholders, business partners and customers for their unwavering trust and support. Your partnership and loyalty have inspired us to strive for excellence, and collectively, I am confident that we will take IndoAgri to greater heights. MARK JULIAN WAKEFORD Chief Executive Officer and Executive Director CEO’S MESSAGE Our cooking oil brand, Bimoli GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 10
Planning and monitoring of terracing work in the replanting at Sei Rumbiya Estate via drone 11 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
GROUP PERFORMANCE REVIEW IndoAgri is a vertically integrated agribusiness group and a leading palm oil producer in Indonesia, with operations spanning from R&D, seed breeding, oil palm cultivation and milling, to the manufacturing andmarketing of cooking oils, margarine and shortening. The Group also cultivates sugar cane, rubber and other crops as part of its diversified portfolio. The Plantation Division is IndoAgri’s principal business. In Indonesia, the Division owns 293,429 hectares of planted crops and operates 27 palm oil mills, three crumb rubber processing facilities, two sheet rubber processing facilities, two sugar mills and refineries, and one factory each for the production of tea and cocoa. It also has an investment in three sugar and ethanol mills in Brazil through CMAA. The Group’s EOF Division owns and operates five CPO refineries across Indonesia to produce a wide range of branded cooking oils, margarine, shortening and specialty fats. FINANCIAL HIGHLIGHTS Prices of most agricultural commodities increased sharply in the first half of 2022, driven by the disruption of Ukraine’s sunflower oil supply due to Russia-Ukraine conflict and the Indonesian government’s ban on palmoil exports. However, commodity prices started to ease from July 2022 following the lifting of the export ban, along with the increased availability of competing vegetable oils. After the extreme volatilities experienced in 2022, the prices of vegetable oils (including palm oil) showed signs of stabilisation, with fluctuations moving within a much narrower range in 2023. CPOprices (CIF Rotterdam) declined by 29% to an average of USD972 per tonne in 2023 from USD1,370 per tonne in 2022. The Group recorded lower profitability in 2023 mainly due to lower selling prices of palm and EOF products. However, the decline was partly offset by higher sales volume of palm products. Net profit after tax contracted by 29% to Rp936 billion in 2023, mainly due to lower gross profit. This was partly offset by lower other operating expenses, net changes in fair value of biological assets and lower income tax expenses. FINANCIAL POSITION As of 31 December 2023, the Group’s total non-current assets stood at Rp27.2 trillion, compared to Rp27.7 trillion in the previous year. The decrease was mainly due to the depreciation of property, plant and equipment, lower rightof-use assets and carrying value of investment in associate companies. However, this was partly offset by higher carrying value of investment in joint ventures. The Group recorded total current assets of Rp9.9 trillion as of 31 December 2023, compared to Rp10.6 trillion in the previous year. The decrease was mainly due to lower CPO Revenue (Rp trillion) Profit Attributable to Owners of the Company (Rp trillion) 2023 2022 2021 0.6 0.8 0.8 2023 2022 2021 16.0 17.8 19.7 Profit from Operations (Rp trillion) NAV per share (Rp) 2023 2022 2021 9,703 9,241 8,310 1.9 2.7 2.8 2023 2022 2021 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 12
inventories, reduced trade receivables in line with lower EOF sales and lower advances for the purchase of rawmaterials. However, this was partly offset by higher cash levels. The Group’s total liabilities decreased by 13% to Rp13.2 trillion mainly due tohigher loan repayment in 2023, lower employee benefits liabilities which were determined based on actuarial calculations in accordance with the Indonesian Labour Law, and lower trade and other payables and accruals. The decrease was partly offset by higher deferred tax liabilities. As of 31 December 2023, the Group recorded net current assets of Rp0.4 trillion compared to Rp0.7 trillion in the previous year-end. The Group’s financial position continued to strengthen with higher cash and lower interest-bearing loans and borrowings. The Group’s net debt-to-equity ratio improved, decreasing from 0.20 times as of 31 December 2022 to 0.11 times as of 31 December 2023. CASH FLOWS The Group generated higher operating cash flows of Rp3.8 trillion in 2023 compared to Rp3.6 trillion in the previous year. This was mainly due to improved working capital and lower income tax paid. Net cash flows used in investing activities were lower than the previous year’s level at Rp1.3 trillion mainly due to lower additions of property, plant and equipment, along with lower investment in joint ventures and associated companies. This was partly offset by higher investment in biological assets and plasma projects. In terms of financing activities, the Group recorded net cash usage of Rp1.7 trillion in 2023 compared to Rp1.6 trillion in 2022. This was mainly due to the net repayment of loans and dividend payments during the year. As of 31 December 2023, the Group’s cash levels increased to Rp5.2 trillion fromRp4.4 trillion a year ago. This was largely due to positive operating free cash flows. Employees’ training in Kayangan Estate, Rokan Hilir, Riau 13 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
FINANCIAL HIGHLIGHTS In Rp billion In SGD million * 2021 Actual 2022 Actual 2023 Actual 2021 Actual 2022 Actual 2023 Actual Revenue 19,659 17,797 16,003 1,733 1,568 1,410 Gross profit 5,073 4,559 3,282 447 402 289 Gain/(loss) arising from changes in fair value of biological assets 113 (136) 13 10 (12) 1 Profit from operations 2,826 2,702 1,948 249 238 172 Net profit after tax 1,287 1,318 936 113 116 82 Profit attributable to owners of the Company 759 770 614 67 68 54 EPS (in Rp)/(in SGD ‘cents) 544 552 440 4.8 4.9 3.9 Current assets 9,550 10,552 9,944 815 901 849 Fixed assets 18,527 18,136 17,582 1,582 1,548 1,501 Other non-current assets 9,559 9,578 9,592 816 818 819 Total assets 37,636 38,266 37,118 3,213 3,267 3,169 Current liabilities 9,970 9,883 9,582 851 844 818 Non-current liabilities 6,230 5,231 3,620 532 447 309 Total liabilities 16,200 15,114 13,202 1,383 1,291 1,127 Shareholders' equity 11,601 12,900 13,545 991 1,101 1,157 Total equity 21,436 23,152 23,916 1,830 1,977 2,042 Total debt 10,334 9,144 7,796 882 781 666 Cash 3,764 4,422 5,226 321 378 446 In Percentage (%) 2021 Actual 2022 Actual 2023 Actual Sales growth/(decline) 35.8% (9.5%) (10.1%) Gross profit margin 25.8% 25.6% 20.5% Profit from operations margin 14.4% 15.2% 12.2% Net profit after tax margin 6.5% 7.4% 5.8% Profit attributable to owners of the Company margin 3.9% 4.3% 3.8% Return on assets 1 7.5% 7.1% 5.2% Return on equity 2 6.5% 6.0% 4.5% Current ratio (times) 1.0 1.1 1.0 Net debt to equity ratio (times) 3 0.31 0.20 0.11 Total debt to total assets ratio (times) 0.27 0.24 0.21 1 Profit from operations divided by total assets 2 Profit attributable to owners of the Company divided by shareholders’ equity 3 Net debt divided by total equity * For ease of reference, 2021 to 2023 Income Statement and Balance Sheet items are converted at exchange rates of Rp11,347/SGD1 and Rp11,712/SGD1, respectively. GROUP PERFORMANCE REVIEW GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 14
OPERATIONAL HIGHLIGHTS The table below relates to business operations in Indonesia. For the operation in Brazil, please refer to page 19 of this annual report. In Hectares Planted Area – Nucleus 2021 Actual 2022 Actual 2023 Actual Oil Palm 250,615 244,768 244,337 Mature 214,053 218,064 220,531 Immature 36,562 26,704 23,806 Rubber 16,228 16,074 16,238 Mature 14,270 14,033 14,195 Immature 1,958 2,041 2,043 Sugar Cane 14,411 14,056 13,384 Others 19,495 19,590 19,470 Mature 16,289 16,441 16,252 Immature 3,206 3,149 3,218 Planted Area – Plasma Oil Palm and Rubber 90,229 90,551 90,867 Age Profile of Oil Palm Trees – Nucleus Immature 36,562 26,704 23,806 4 – 6 years 5,715 7,086 8,693 7 – 20 years 122,210 125,613 126,140 Above 20 years 86,128 85,365 85,698 Total 250,615 244,768 244,337 Distribution of Planted Areas – Nucleus Riau 56,307 56,145 56,175 North Sumatra 38,236 36,473 36,903 South Sumatra 98,088 95,919 94,532 West Kalimantan 26,845 24,742 24,675 East Kalimantan 61,453 61,651 61,640 Central Kalimantan 10,987 10,842 10,841 Java 3,263 3,249 3,177 Sulawesi 5,570 5,467 5,486 Total 300,749 294,488 293,429 Production Volume (’000 tonnes) Total FFB 3,455 3,741 3,632 FFB - Nucleus 2,761 2,812 2,784 CPO 687 736 708 Palm Kernel (PK) 168 180 175 Rubber 6.2 5.2 4.7 Sugar 1 57 57 58 Sales Volume (’000 tonnes) CPO 2 698 701 743 PK and PK Related Products 3 162 166 184 Rubber 5.6 5.8 5.1 Sugar 60 59 55 Oil Palm Seeds (million units) 6.3 9.3 9.7 1 Comprised of sugar production in South Sumatra, and share of sugar produced in Central Java 2 Sales to external and internal parties 3 Comprised of PK, Palm Kernel Oil (PKO) and Palm Kernel Expeller (PKE) 15 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
FFB Harvesting, Ampanas Estate, East Kalimantan PLANTATION REVIEW Operation in Indonesia GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 16
The Plantation Division manages the plantations, and production and sale of CPO, PK-related products, crumb and sheet rubber, sugar, tea, cocoa and other products, mainly for domestic consumption. The nucleus oil palm estates span 244,337 hectares across Indonesia, of which 10% are immature. The average age of palm trees is 19 years old. FFBs are harvested and processed by 27 mills across our estates, with a total annual capacity of 7.2 million tonnes. The nucleus rubber estates occupy 16,238 hectares in North and South Sumatra and Sulawesi, of which 13% are immature. The average age of rubber trees is 18 years old. Rubber is processed by three crumb rubber and two sheet rubber facilities. Oil palm and rubber plasma partnership was 90,867 hectares. The sugar estates in Indonesia occupy 13,384 hectares. Harvested cane is processed at an 8,000 tonnes of cane per day (TCD) sugar mill and refinery in South Sumatra, and a 4,000 TCD sugar mill and refinery in Central Java. The Division also operates 19,470 hectares of other crops with one factory each for the production of tea and cocoa. 2023 REVIEW The Plantation Division recorded a flattish FFB nucleus production. This, coupled with lower purchases of FFB fromexternal parties, led to a 4% decline in CPO production. The Plantation Division’s revenue declined by 7% mainly due to lower palm selling prices, which partly offset by higher sales volume of palm products. Despite higher sales volume from the realisation of the previous year’s CPO stock and tight cost-control measures, this Division reported lower operating profit of Rp1,372 billion in 2023 compared to Rp2,092 billion in 2022. FFB Production (Nucleus) (in ’000 tonnes) Oil Palm Age Profile (Nucleus) Total Planted Area: 244,337 hectares Average Age: 19 years CPO Production (in ’000 tonnes) 2023 2022 2021 708 736 687 2023 2022 2021 2,784 2,812 2,761 >20 years 7-20 years 4-6 years Immature 35% 10% 3% 52% 17 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
A palm oil mill 2024 OUTLOOK Commodity prices are expected to remain highly volatile amid uncertainties fromweather conditions and geopolitical conflicts. Demand is likely to remain subdued due to weaker economic growth and challengingmacroeconomic factors, such as high inflation and interest rates. In 2024, the Plantation Division will maintain its emphasis on crop management activities to raise FFB yields. Focus will also be placed on improving cost control, pursuing innovations that elevate plantation productivity, and prioritising capital investments in critical areas. Efforts will be supported by optimising our manpower resources, reviewing the financing structure to strengthen our financial position, as well as ongoingmechanisation and IT initiatives. Barring unforeseen circumstances, we are on track to achieve 100% ISPO-certification for all nucleus estates and mills by the end of 2024, while remaining fully committed to our sustainability programmes. Amid rising costs, productivity and cost efficiency initiatives remained a key priority, with efforts focused on process streamlining, enhanced fertiliser application through nutrient analysis, preventive maintenance strategies, mechanisation programmes and usage of renewable energy sources. We remain fully committed to our sustainability and ESG goals. Material issues were diligently tracked and ensuring that all rolled-out sustainability progammes were executed as planned. During the year, the Group’s ISPO-certified production was 493,000 tonnes, representing 85% of total nucleus CPO production. In 2023, our rubber production fell by 9% to 4,700 tonnes due toweather-related impacts. 47% of our rubber products, comprising sheet rubber and crumb rubber, were sold domestically, while the rest were exported. Our sugar cane plantation in South Sumatra produced 50,600 tonnes of sugar in 2023, a year-on-year increase of 2%. In Central Java, our factory produced 23,900 tonnes of sugar, with 7,900 tonnes being our share and the balance being the share of the farmers supplying the cane. PLANTATION REVIEW Operation in Indonesia GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 18
The Plantation Division’s sugar and ethanol operations in Brazil are held andmanaged through IndoAgri’s 36.21% stake inCMAA andBússola. CMAAoperates three sugar and ethanol mills in Brazil with a combined annual sugar cane crushing capacity of 9.7 million tonnes. 2023 REVIEW Despite an increased crop yield in Brazil, sugar prices reached their highest levels in 2023 as a result of the supply deficit due to lower crop yields in India and Thailand. In 2023, CMAA crushed 9.45 million tonnes of sugar cane compared to 8.2 million tonnes in the previous season, producing 703,000 tonnes of raw sugar, 352,000 m3 of ethanol and 426,000 MWh of electricity. The Company’s share of profits from the joint ventures increased to Rp133 billion from Rp52 billion in 2022. This was mainly due to higher raw sugar sales volume and prices, partly offset by reduced ethanol sales and higher income tax expenses. In terms of sustainable production, CMAA achieved Bonsucro certification for 3.5 million tonnes of sugar cane in 2023, accounting for 73% of the total cane produced by CMAA. 2024 OUTLOOK Global sugar prices are expected to be influenced by the crop prospects and sugar production in Brazil, which will depend on ethanol parity, crude oil prices, Brazil’s biofuel policy ( RenovaBio) and fluctuations of the Brazilian Real. Prices could also be affected by India’s sugar subsidies, export volumes and biofuel policy. Faced with a challenging economic landscape due to the tightening market liquidity and high interest rates in Brazil, CMAA’s priority will be to optimise the sugar-ethanol production mix to maximise profitability. Additionally, it plans to increase its sugar crystallization production capacity by 62,000 tonnes per year, and expand its crushing capacity by one million tonnes to reach a total of 10.7 million tonnes in the 2024/25 crop year. CMAA’s UVT sugar mill and ethanol plant in Brazil PLANTATION REVIEW Operation in Brazil 19 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
PLANTATION REVIEW R&D in Indonesia The Plantation Division operates two oil palm R&D centres – SumBio in Bah Lias, North Sumatra, and PT SAIN in Pekanbaru, Riau. Both centres are certified palm seed producers whose superior seeds are prized for their highyielding qualities, as well as their tolerance for drought and diseases. Thecentres areoperatedbyexperiencedagronomists and researchers who conduct extensive field work on crop yields, crop resilience, pest and disease control and estate management practices among other areas. The Division also runs an R&D facility for sugar cane in South Sumatra. Besides developing superior seeds, the R&D centres establish guidelines and practices for the productive and sustainable use of limited land resources. Our innovations have contributed to sustainable oil palm farming in Indonesia, as well as IndoAgri’s long-term competitiveness as an integrated agribusiness. Among these innovative practices are block-based farming, soil conservation using Vetiver systems, and recycling of by-products, like EFB and POME, into soil mulch and nutrient substitutes, as well as a number of natural integrated pest management strategies. 2023 REVIEW Throughout the year, SumBio and PT SAIN’s crossbreeding programmes were focused on the development of new and high-yielding seed varieties with unique traits. Achievements included identifying a molecular marker to differentiate virescens and nigrescens fruit types, and introducing tenera clones of palmseeds combining virescens traits with long stalks for more efficient mechanised harvesting. Aside from the seeds for our own internal planting and replanting programmes, the Division sold 9.7 million oil palm seeds to plantation companies and farmers in 2023. The sales volume was 4% higher than the previous year. To safeguard against counterfeits, we continued to use UV markers for palm seed authentication. Other achievements included adjustments to the fertiliser mix by using compost to supplement other organic fertilisers, and the application of controlled-release fertilisers on immature oil palms. Further enhancing our cultivationmethods, we have reduced chemical pesticide use in our plantations and established ecosystems of natural predators and parasitoids to combat bagworms, hairy worms and nettle caterpillars. We have intensified crop protection by deploying entomo-pathogenic agents (fungi, bacteria, and viruses) as biopesticides, along with pest predators (Eocantechona sp and Sycanus sp) and UV light traps to control leaf-eating caterpillars. Drone images, integrated with the GIS and ground GPS data, have allowed for real-timemonitoringof field conditions, providing accurate feedback on the health of our oil palms. Additionally, the regular conduct of spatiotemporal analyses has led to better pest control and risk management. By correlating the agronomic parameters with aerial data, we were able to swiftly remedy field situations, while achieving higher productivity and cost savings. For the sugar operations in Indonesia, we continued with the cultivation of high-yield cane varieties, which have demonstrated commercial viability over existing strains. Our success with the integration of drones for sugar cane ripening has further enhanced productivity and cost efficiency. 2024 OUTLOOK We will continue with our seed-cultivation techniques and proven agronomic practices to improve crop management and planting densities. Collaborations with universities and research institutions to accelerate key R&D programmes will be actively pursued. Data from our soil hydrology studies, satellite sources and 3D topographic maps will be integrated with WebGIS to support remote decision-making. TheWebGIS can compute the precise fertiliser requirements and adjust yield predictions on a block-by-block basis, thereby lowering our groundsampling costs significantly. We have also been incorporating WebGIS into our SAP system to achieve better oversight of our plantation operations and crop conditions. We will continue to leverage data analytics and machine learning to improve precision agriculture, optimise yields, reduce production costs and promote sustainable land use. Lab activity at Bah Lias Research Station GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 20
Tissue culture lab at Bah Lias Research Station 21 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
EDIBLE OILS & FATS REVIEW Operation in Indonesia Cooking with branded cooking oil, Bimoli GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 22
23 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
EDIBLE OILS & FATS REVIEW Operation in Indonesia The Edible Oils & Fats (EOF) Division produces palm oil products, margarine and palm-based derivatives (RBD palm stearin and palm fatty acid distillate) for consumer and industrial markets. The Division operates five refineries with a total annual processing capacity of 1.7 million tonnes of CPO. The consumer cooking oils are retailed under Bimoli , Bimoli Spesial and Happy, and the consumer margarines under Amanda, Palmia and Royal Palmia. The industrial cooking oils are supplied directly to Indofood and other food manufacturers, while themargarine and shortening products are marketed to confectioneries, bakeries and food manufacturers under Amanda, Delima, Malinda, Palmia and Simas. Sales and distribution of EOF products are supported by Indofood’sDistributionGroup, whichhas anextensivenetwork across Indonesia. More than 83% of EOF products are sold domestically and the rest are exported to countries across Asia, Africa, America and the Middle East. 2023 REVIEW The Division’s refinery operations demonstrated resilience in 2023 despite cooking oil policy changes. This was driven by competitive pricing strategies that allowed for regular reviews and adjustments to maintain a certain level of profitability. Financially, the Division reported a 11% decrease in revenue to Rp11.3 trillion mainly due to lower selling prices. Despite this, the Division remained profitable with an operating profit of Rp647 billion, albeit lower than the previous year’s Rp842 billion. Integral to this performance was IndoAgri’s vertically integrated operation, ensuring a stable supply of raw materials to the Division. Throughout 2023, a substantial 77% of the CPO used in producing cooking oils, margarine and shortening came from our own plantations. The production capacity of the Surabaya industrial margarine plant, which was expanded by 200 metric tonnes per day (MTPD) in 2022, has enabled us to better meet rising margarine demand. During the year, we undertook a series of marketing activities to promote our branded cooking oils. Efforts included amplifying our brand presence with a new Bimoli TVC on major television channels, attractive displays to raise product visibility in the modern trade outlets, along with bigger and more prominent shelf space tomake our cooking oils more accessible to consumers. We also took part in a government programme offering affordable, packaged cooking oils to micro, small andmediumenterprises (MSMEs) andhouseholds, primarily under the government’s cooking oil brand, MinyaKita. For our consumer and industrial margarines, we developed thematic campaigns. These included new TVCs for Palmia multi-purpose margarine and Royal Palmia margarine, which helped to spur consumer sales during the festive seasons. We also organised cooking demonstrations in key modern trade outlets, engaging directly with consumers to encourage trial and consumption. For our industrial margarines, we enhanced in-store branding during festive seasons, and strengthened our online presence by integrating our B2B and B2C microsites. To connect with MSMEs and bakery owners, we brought the Palmia Baking Roadshow to 34 cities across Indonesia, introducing new recipes for our margarine and shortening products while demonstrating their versatility and quality in professional baking applications. The R&D team supported the EOF Division by improving the nutritional content of our cooking oil and margarine products to suit the dietary needs of Indonesian consumers. Achievements included customised cooking oil formulations for industrial customers, and multivitamin-enriched margarines for household consumers. We also continued to develop smarter packaging designs made from environmentally friendlier materials with help from the R&D team. 2024 OUTLOOK In the year ahead, we will continue to focus on the growth and recovery of EOF sales volumes through competitive pricing strategies. We are confident that the EOF market in Indonesiawill expand, in linewith the increasing population and per capita income growth trends. Efforts will be bolstered by thematic advertising campaigns, aimed at enhancing in-store product visibility and reinforcing our cooking oil and margarine brands. We will also continue to support Indonesia’s domestic market obligation (DMO) scheme through the government’s cooking oil brand, MinyaKita. Cartons distribution across Indonesia GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 24
Margarine Fresh Fruit Bunches Crude Palm Oil Refining Palm Kernel Crushing RBD Palm Oil Lauric Oil Margarine & Shortening Plant Blending Blending Mixing Tank Mixing Tank Chilling Chilling Packaging Packaging RBD Palm Olein Packaging Palm Kernel Expeller Milling Flavouring & Vitamins Water & Salt Shortening Cooking Oil Palm Kernel Oil Empty Fruit Bunches and Effluent Palm Fatty Acid Distillate Fractionating & Filtration RBD Palm Stearin Nitrogen Gas MANUFACTURING PROCESS FROM FFB TO EOF PRODUCTS 25 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
SUSTAINABILITYAT INDOAGRI IndoAgri has continued to enhance the maturity of its sustainable business practices. As a plantation operator, we strongly believe that we have the responsibility to actively address our ESG risk factors, while also doing our part to meet the global demand for EOF production. We consistently uphold our dedication and commitment to sustainable operations, supported through R&D, continuous innovation and productivity enhancements. We ensure that the safety and well-being of our employees are prioritised. We offer meaningful livelihoods for locals in communities wherewe operate by providing employment opportunities, responsibly managing land resources, and through our contributions to economic growth. Our Sustainable Agriculture Policy guides all of IndoAgri’s business strategies and activities, establishing the basis for traceable and responsible operations. The Policy is underpinned by the following key commitments: • No Deforestation; • No Planting on Peat, Regardless of Depth; • No Burning; • Preservation of High Conservation Value and High Carbon Stock Areas; • Upholding of Labour and Human Rights, including Freedom of Association and Non-Discrimination; and • Upholding of Free, Prior and Informed Consent (FPIC). Recognising the vulnerability of the agribusiness industry to a changing climate, we have actively increased the focus and resources devoted to understanding our exposure to climate risk in recent years. In 2022, we began to adopt the TCFD framework by performing qualitative climate scenario analyses. In the 2023 Sustainability Report, we now fully comply with the TCFD disclosure requirements. While climate-related risks have long been integral to our ERM assessments, in 2023 we expanded our ERM framework to include additional physical and transition risks, thereby improving our ability to identify, assess, manage andmonitor our climate-related risks and opportunities. The ERM team has been working closely with the research, sustainability and operational teams to embed a risk assessment matrix into our business, with the financial and operational impacts informing our mitigative actions and business strategy. KEY SUSTAINABILITY PERFORMANCE IN 2023 • Certified CPO in Indonesia – 493,000 tonnes of ISPO-certified CPO, representing 85% of total nucleus CPO production • Certified Sugar Cane in Brazil – 3.5 million tonnes of Bonsucro-certified production, representing 73% of CMAA’s own sugarcane production • Occupational Health and Safety – Zero paraquat use since 2018 – 100% of sites certified to SMK3 occupational health and safety (OHS) management system with 60 sites achieving the SMK3 Gold award – 25% increase in high-consequence work-related injuries – 24% reduction in recordable work-related injuries – Two work-related fatalities (one in oil palm operations and one in sugar cane operations) One of IndoAgri’s certified mills GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION Indofood Agri Resources Ltd 26
• Worker Welfare – Compliance with regulations on minimum wage and employment contracts for full-time and seasonal workers – No registered worker below 18 years of age • Energy and Water Consumption (2020 baseline) – 4% reduction in energy intensity in mills – 24% increase in energy intensity in refineries* – 2% reduction in water intensity in mills – 27% increase in water intensity in refineries* – 99% of fuel used in mills from renewable sources – 100% of milling waste reused by estates and mills • Smallholders – Seven of 12 smallholder cooperatives have fulfilled the SMK3 and ISPO requirements on OHS, and passed the external audits conducted by TUV Rheinland Indonesia * 2023 energy and water intensity per tonne of material produced at our refineries increased against 2020 baseline was mainly affected by lower processed material volume and fluctuations in the quality of raw materials. In terms of 2023 absolute consumption, it recorded a reduction against 2020 baseline. A SYSTEMATIC APPROACH We respond to ESG risks and opportunities by providing training to our personnel, establishing formal management processes, instilling a culture of accountability, and supporting partnership programmes with community groups. Commitment Our sustainability teamcomprises well-trained professionals who manage our material sustainability topics and impacts in accordance with the Group’s mission and values. Planning The Group’s ERM framework, rigorous approaches to corporate governance, and established internal controls provide additional lines of defence against broader risks and uncertainties. We apply R&D to innovate and achieve sustainable growth in our domestic and international markets. Action Our local teams implement and enforce the Group’s sustainability policies, commitments and programmes. We usemanagement systems and standardoperating procedures to maintain quality and drive improvements in areas such asR&D,workplacehealthandsafety, foodsafety, environmental management and information control. Our six Sustainability KEY SUSTAINABILITY TARGETS • ISPO certification for nucleus estates and mills by end of 2024 • All FFB supplies for our CPO refineries to be sourced in accordance with our Sustainable Agriculture Policy and ISPO-certified by end of 2025 • Zero fatalities annually SUSTAINABILITY MANAGEMENT The Group’s Sustainable Agriculture Policy applies to every operational unitwithin IndoAgri, includingplasma smallholders and third-party CPO suppliers. The Policy outlines our strategies for maintaining accountable and traceable supply chains, zero-tolerance to violations of human rights as well as no deforestation. It also includes our approach to the risks and opportunities arising from the ESG factors, as well as our engagements with various stakeholder groups. In addition to the Sustainable Agriculture Policy, our Labour Policy details our commitments to protecting the rights of those working in and living around our estates. This Policy is applicable toall employees, aswell as theplasma smallholders and third parties who supply to our factories and refineries. We encourage all suppliers to make similar commitments in their own operations and align with our Policy. SUSTAINABILITY MANAGEMENT PLANNING • Government policy • Corporate business system • Sustainability Programmes REPORTING • Annual Report • Sustainability Report • Website ASSESSMENT • Indicators • Targets • Evaluation through audit • Materiality review COMMITMENT • Mission • Code of conduct • Policies • Values ACTION • R&D • Management systems • Certifications • Stakeholders engagement • Internal collaboration • Training 27 Annual Report 2023 GROUP OVERVIEW OPERATION AND FINANCIAL REVIEW SUSTAINABILITY & GOVERNANCE FINANCIALS OTHER INFORMATION
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