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Review of Group Performance
Revenue and Gross Margin: Crude Palm Oil (CPO) price for Q1 2009 was at average US$577
a tonne (CIF Rotterdam) versus US$1,156 a tonne in Q1 2008. This downturn in CPO prices
have directly affected our results for Q1 2009, Group revenue declined 30% to Rp2.0 trillion
compared to same period last year, reflecting lower selling prices of palm oil, rubber, edible oil
products and copra-based products. Notwithstanding this, CPO sales volume was marginally up
1% to 170,507 tonnes while margarine volume saw a 14% growth compared to same quarter last
year.
Given the lower palm oil, rubber and edible oil products selling prices in Q1 2009, all business
divisions ended with lower revenue against same period last year. Plantation Division recorded
total revenue of Rp1.2 trillion, down 34% from a year ago mainly due to the combined effects of
lower selling prices of palm oil products and rubber, coupled with a decline of 35% in sales
volume of rubber on the back of a weaker demand. Cooking Oils and Fats Division likewise
recorded a decline of 19% in revenue largely due to lower selling prices and a decline of 4% in
sales volume of cooking oil of 97,890 tonnes in Q1 2009 vs.101,630 tonnes in Q1 1008. On a
positive note, the demand for margarine products picked up with a 14% volume growth in Q1
2009. Commodity Division revenue came in lower than same period last year by 52% due to the
combined effects of lower sales volume and lower average selling prices of copra-based and
palm-based products.
Group overall profit margin, which was impacted by the lower selling prices of plantation crops
and edible oil products, declined from 43.1% in Quarter 1 2008 to 41.2% in Q1 2009. However,
the operating profit in Cooking Oils and Fats Division increased by 57% to Rp77 billion in Q1
2008 to Rp122 billion in Q1 2009 due to better operational performance.
Gain/(loss) arising from changes in fair values of biological assets: In accordance with the
Singapore Financial Reporting Standards ("SFRS") No. 41, "Agriculture", biological assets are
stated at fair value less estimated point-of-sale costs (estimated selling costs). Gains or losses
arising from the changes in fair values of the biological assets at each reporting date are included
in the consolidated income statement for the period in which they arise.
Notwithstanding the above, it is the practice of the Group to engage an independent firm of
valuers to prepare the valuation of the biological assets (which primarily comprise oil palm and
rubber plantations) on a semi-annual basis. The valuations were prepared based on the
discounted net future cash flows of the underlying plantations. The expected net future cash
flows of the underlying plantations are determined using the forecasted market prices of the
related agricultural produce.
In line with the Group's practice, there was no recognition of gain/(loss) arising from the changes
in fair values of biological assets in Q1 2009.
Profit from Operations: The Group profit from operations declined by 46% from Rp1.1 trillion in
Q1 2008 to Rp0.6 trillion in Q1 2009. This was principally due to (i) lower gross profit in
Plantation Division; (ii) higher G&A expenses mainly due to general increase in salaries and
wages; and (iii) higher other operating expenses resulting mainly from net loss on foreign
exchange on US dollar denominated loans of Rp95 billion versus a net gain of Rp43 billion in Q1
2008. However, selling and distribution costs were lower due to reduced freight cost and zero
Indonesia export taxes during the quarter compared to Rp37 billion of export taxes in same
quarter last year.
Net Profit After Tax (NPAT): The Group achieved a NPAT of Rp299 billion, which included
higher interest on borrowings of Rp104 billion versus Rp84 billion in Q1 2008. Tax expense was
lower in Q1 2009 in line with lower profit. The effective tax rate was higher in Q1 2009 at 39%
versus 30% in Q1 2008 due to non-deductible expenses, comprised mainly interest expenses
and net loss on foreign exchange, relating to the loans obtained for the acquisition of Lonsum.
The Group's net assets stood at Rp11.2 trillion as at 31 March 2009, increased marginally from
Rp11.0 trillion as at 31 December 2008.
Non-Current Assets
Total non-current assets increased from Rp16.5 trillion as at 31 December 2008 to Rp17.1 trillion as at 31 March 2009 due to:Current Assets
Cash position ended lower at Rp1.9 trillion versus Rp2.4 trillion as at 31 December 2008. This was attributed to payment of additional corporate income taxes for 2008 and cash outflows for investing activities such as purchases of assets, additions of biological assets and acquisitions of minority interests in Sain and Mitra;Current Liabilities
Trade and other payables and accruals rose by Rp126 billion to Rp1.2 trillion as at 31 March 2009 on higher advance payment from customers; accruals for salaries and wages, bonus and employees benefits.2008 was an extremely volatile year for commodity prices, which saw CPO price (Rotterdam CIF)
averaging at historical peak of over US$1,100 a tonne in the first half of 2008 before declining
sharply in the second half of the year to end the year at US$500 a tonne. In addition, the prices
of raw materials, in particularly fertilizers and fuels also increased substantially in 2008.
CPO price has since re-gained some of its lost ground in Q1 2009, averaging US$577 a tonne.
This was attributed to the expected tighter palm oil supply and lower palm oil inventory in
Malaysia due to lower seasonal production in Q1 2009. Despite this, we expect CPO price to
remain volatile in 2009.
On a longer term, the fundamental demand for palm oil remains positive as it is the most widely
consumed and cheapest amongst all other edible oils such as soybean and rapeseed oils. We
expect demand for palm oil will continue to remain relatively resilient in 2009 despite the
challenging economic climate.
We have seen some easing of the prices of raw materials in particularly fertilizers and fuel cost at
the beginning of 2009. We will continue to manage our balance sheet and cash flows prudently,
while exercising efficient cost management and investing strategically in our future growth.
The Group will continue to leverage on the strength of our integrated business model and
continue to grow our plantation business while maintaining low cost of production, this will
position us well to face the challenges ahead. Our operational strength and commitment to
research and development, and our strong seed breeding operations, will enable us to
continually implement and improve best practices for sustainable development of our plantations
and to further strengthen our competitive position.
