Page 14 - ar2012

Rubber
Global demand growth for rubber slowed down in 2012 due to the
adverse global economy, aggravated by lower replacement tyre
sales. After falling by over 15% since the beginning of 2012, rubber
prices (RSS3 SICOM) stabilised in the second half of the year. On a
full year basis, 2012 prices declined 30% to US$3,384 per tonne
compared to US$4,824 per tonne in 2011, affecting especially our
subsidiary Lonsum, which carries most of our rubber production.
The long-term outlook for rubber is supported by healthy demand from
tyre-makers, automotive industries and rubber goods manufacturers
in developing markets. China in particular, is expected to drive
demand, given its large population and status as the world’s largest
natural rubber consumer, at approximately 35% of world natural
rubber demand.
Sugar
Indonesia remains a net importer of sugar with over 50% of its
domestic sugar demand fulflled by imports. Sugar prices in Indonesia
are relatively shielded from global fuctuations with government
policies aimed at protecting the domestic industry and particularly,
the smallholder farmers. Currently the domestic sugar price in
Indonesia is above the international market as the government
restricts imports when domestic prices fall below the mandated
foor price of Rp8,100 per kilogram. In the near term, Indonesia will
continue to rely heavily on sugar imports, despite the government’s
intentions for Indonesia to be self-suffcient.
Sugar prices on the London International Financial Futures and
Options Exchange (LIFFE) fell to an average of US$588 per tonne
compared to US$706 per tonne in 2011. Moving forward, the
direction for the global sugar prices will be strongly infuenced
by production levels in Brazil, together with Brazilian government
policies on ethanol.
2012 Financial Performance
Against these economic conditions, the Group reported consolidated
revenue of Rp13.8 trillion, a 10% increase over last year’s Rp12.6
trillion. The improved sales performance was achieved on the back
of higher CPO sales volume and edible oils products to external
parties as well as positive sales contribution from our sugar operation.
Proft from operations came in 28% lower at Rp2.7 trillion in 2012
mainly attributable to lower gross proft, higher operating expenses,
lower foreign exchange gains and biological asset gains, as well as
share of losses of an associated company of Rp36 billion.
2012 net proft after tax (NPAT) of Rp1.8 trillion fell 31% over 2011
mainly attributable to the reasons above, and higher fnance expenses
in 2012 relating to the non-capitalisation of interest expenses following
the commencement of the Komering sugar mill/refnery operation
in September 2011. Correspondingly, the Group’s attributable proft
of Rp1.1 trillion for 2012 represented a 30% decline over 2011.
Accelerating Expansion
Over the last 3 years we have invested Rp6.9 trillion (approximately
S$880million) in capital expenditure, over three times our depreciation
charge of Rp2.1 trillion (S$260 million) for the period. The signifcant
investment in organic growth is demonstrated by 54,000 hectares
of immature oil palms as at 31 December 2012, which will deliver
future volume growth.
The proposed acquisition of a 50% equity interest in Companhia
Mineira de Açúcar e Álcool Participações (CMAA) targeted to
complete in 2Q 2013 complements our strategic interests. CMAA
produces raw sugar, as well as hydrous and anhydrous ethanol and
also sells surplus electricity.
The Group’s expansion into Brazil is an important step for business
growth. From a benchmarking point of view, the acquisition will
improve the cost and operational effciencies of our sugar business
as we apply knowledge and expertise acquired from the Brazilians
as the lowest cost sugar producers in the world. From a technology
perspective, the highly mechanised nature of the Brazilian sugar
industry compels us to strengthen productivity in the domestic
context, where cane harvesting remains a largely manual operation.
CMAA’s state-of-the-art factory and advanced methodologies are
ranked among the top 10% of 450 sugar factories in Brazil. Our
partnership with CMAA gives us access to proven technologies and
professional expertise required to operate more effciently as a Group.
Through knowledge and technology transfers, we aim to increase
our mechanisation strategy as we drive operational improvements
across our plantations in Indonesia.
Tapping into Technology Transfer
Our Brazilian sugar estate presents good prospects for growth. For
one, its planted acreage of 34,000 hectares will be expanded to
45,000 hectares within 3 years. Approximately 50% of this acreage
will come from third-party farmers, while 50% is planted by CMAA
on lands leased from the original landowners.
The technology, knowledge and know-how that we bring back
to Indonesia will enable us to consider further expansion in our
Indonesian sugar operations in the medium term. Besides, our access
to upstream processes at CMAA augurs well with our objectives
for low cost production. Grasping the operations underlying the
expansion of our Vale do Tijuco sugar mill from 3 million to 3.8
million tonnes will contribute positively to production effciencies
at the Group level.
Precision Agronomy for Sustainable Growth
With limited land for expansion coupled with increasing environmental
concerns, yield improvements from current planted areas are a
sustainable way to bridging widening food gaps, as well as keeping
costs of production competitive. While our vertically integrated
agribusiness model delivers on these long-term objectives, we aim
to leverage precision agronomy as a means to greater effciencies
and better farming outcomes.
CEO’s Statement (Cont’d)
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