Page 16 - ar2013

CEO’S STATEMENT
2013 was a challenging year for the agribusiness sector as a
whole. For IndoAgri, it marked our first investments outside of
Indonesia as we achieved some success expanding into the global
sugar industry through a 50% stake in CMAA in Brazil, and a joint
venture investment in RHI in the Philippines.
The theme for this year’s annual report, “Seizing Growing
Opportunities”, reflects these milestones. We achieved results by
leveraging our strengths as a diversified and vertically integrated
agribusiness, optimising our expertise in large-scale plantation
management, and empowering efforts in sustainability.
OPPORTUNITIES IN CHALLENGES
On the agricultural front, the global economic slowdown is being
felt downstream of the supply chain with almost all commodity
prices in 2013 falling below that of 2012’s.
Amongst our key crops, sugar and rubber were the worst hit as
global demand weakened across the board. Demand for palm
oil remained resilient, supported by very competitive CPO prices
versus other competing vegetable oils, as well as diesel prices,
triggering additional non-mandated demand in the bio-diesel
sector. Price trends for CPO, rubber and sugar can be found on
pages 21, 22 and 25 respectively. The lower commodity prices in
2013 have had a material impact on our financial results.
Sugar prices in Indonesia were relatively shielded from global
fluctuations by import quotas and policies aimed at protecting
the domestic industry. Given the world’s reliance on Brazilian
sugar supply, growth in supply, whilst abundant in the last three
seasons, may fail to keep up with rising demands from recovering
economies and higher global populations in the coming years. By
tapping into the efficiency and yield of sugar production in Brazil,
we are positioning IndoAgri to capture these opportunities with our
sugar investments.
In terms of volume, palm oil production fell in 2013 against
an expected rise, as global climate conditions affected crop
patterns across Sumatra. Prolonged rains and flooding disrupted
pollination, growth and harvesting on trees that were weakened by
droughts in 2012 and 2011.
Despite pressure from competing oilseeds like soybeans, CPO
prices remained resilient amidst a bearish market outlook, with
lower production volumes supporting prices, and CPO trading at a
large discount to other competing oils.
In Indonesia, the government has mandated further increases in
the biodiesel blend of gasoils from 7.5% to 10% effective from
January 2014. This translates potentially into significant increases
in domestic demand for palm oil. Given its growing retail market
for cooking oils and vast population of 245 million, of which an
estimated 15% are middle-class, Indonesia looks set to overtake
India to become the world’s largest palm oil consumer.
2013 FINANCIAL REVIEW
In line with the broader decline in commodity prices for agriculture
crops, the Group posted total consolidated revenue of Rp13.3
trillion in 2013, a 4.1% decline over last year’s Rp13.8 trillion.
The Group’s attributable profit declined 50.6% to Rp0.6 trillion
in 2013 due to higher production costs, foreign exchange losses
and higher taxes.
SUSTAINABILITY
I amdelighted that we have issued our first Sustainability Report (SR)
for the year 2012, which can be found at www.indofoodagri.com.
We have prepared the report adhering to the Sustainable Reporting
Guidelines version 3.1 of the Global Reporting Initiative (GRI).
The GRI Report Services have concluded that the report fulfils the
requirements of Application Level C.
As an integrated and diversified agribusiness, we recognise
that the long-term sustainability of our operations is at the core
of what we do. Therefore our SR includes a materiality matrix
highlighting 10 key and material issues impacting our business.
Our SR includes forward-looking targets, especially around RSPO
certification of our plantations. We will continue to update our
SR, measure our performance against previously agreed targets
and plans, and report our progress in line with the GRI initiatives.
This will provide transparency to our sustainability journey in this
critical area.
CONTINUED EXPANSION
In Indonesia, opportunities presented by a growing middle-class and
food and beverage industries underscored our plans to continue
with domestic market expansion. While the government has curbed
land ownership by limiting the size of palm, sugar and rubber estates
respectively to 100,000 hectares, 50,000 hectares and 20,000
hectares per plantation Group, we are drawing on R&D efforts to
improve seed breeding techniques, and will continue to implement
agronomic best practices to strengthen productivity in Indonesia.
Our commitment towards higher palm oil production was also
evident from annual new plantings, which had aggregated
64,000 hectares over the last five years. Gearing up for higher
FFB harvests as plantings reached maturity, we completed one
80 MT/hour new oil palm mill in South Sumatra at the end of 2013
and one 45 MT/hour mill in East Kalimantan that will be due for
completion in Q1 2014.
In addition, two 45MT/hour new mills in Kalimantan will be
scheduled for completion in 2015. We are also expanding two
mills, one in West Kalimantan that was completed in December
2013 and the other in South Sumatra due for completion in
Q3 2014, in preparation for higher FFB production from our
developing estates.
We are now producing palm kernel oil with the completion of the
new 150MT/day PKO plant in Riau in Q1 2014. In addition, we are
also expanding our refinery capacity by constructing one 330,000
MT/year new refinery in Dumai due for completion in 2015. Given
their logistically advantageous locations, these facilities will support
our growth strategy for the cooking oil and margarine business.
In March 2013, we acquired a majority shareholding in MPM
which owns SAL Group that engaged in industrial forest plantations
in East Kalimantan. This transaction fits with our agribusiness
model and diversification strategy into other agriculture crops,
such as cocoa, corn and cassava. We are confident that our
efforts to expand and accelerate growth will contribute positively
to IndoAgri’s competitiveness in the long term.
BENEFITTING FROM VERTICAL INTEGRATION
Downstream, our edible oils business recorded an exceptional
year. Across Indonesia, consumer preference for modern
mini-marts over traditional markets has boosted the customer
DEAR SHAREHOLDERS,
12 INDOFOOD AGRI RESOURCES LTD • ANNUAL REPORT 2013