12.
INDOFOOD AGRI RESOURCES LTD
ANNUAL REPORT 2015
DEAR SHAREHOLDERS,
The global economy remained soft in 2015. Prices of the
Group’s three main commodities – palm oil, sugar and rubber
– had succumbed to the pressure of weak market sentiments,
with supply growth exceeding demand growth for both rubber
and sugar. Although the US Federal Reserve finally raised its
interest rate in late 2015 for the first time in nearly a decade,
the market response had been tentative in light of China’s
stock market crash, the devaluation of the Renminbi and the
creeping recovery of Europe.
Crude oil demand had stayed suppressed with prices
dithering at an average of USD50 a barrel throughout the year.
The repercussion was felt in the biofuel market, as the low
crude oil price has eliminated virtually all the discretionary
biodiesel demand. The resulting surplus in biofuel crops has
put both palm oil and sugar under further price pressure.
The full potential of lower fossil fuel prices has also not
transmitted through to the Indonesian economy as domestic
markets endured the weak Rupiah and a slow start of the
economic reform programmes promised by the newly elected
government. In view of the tight market conditions, the Group
decided to rein in both capital and discretionary expenditure,
slow down new development projects and plantings during
the year, and focus its strategies on cost control initiatives.
In 2015, the Group registered positive growth with the
production of 3,414,000 tonnes of FFB nucleus and one
million tonnes of CPO, up 5% from the previous year. Despite
the higher production, our 2015 results were affected
negatively by soft commodity prices and a weakened Rupiah.
Our consolidated revenue in 2015 dropped by 8% to Rp13.8
trillion due to contracted sales value and volume of edible
oils. This, coupled with foreign currency losses, has led to a
78% decline in net profit after tax. Our core profit, excluding
the effects of foreign exchange losses and biological asset
valuation, was Rp555 billion, a decline of 60% from 2014.
Strengthening core operations
We took the opportunity of the slow year to improve internal
operations, innovation and production capacities. The
production facilities in Kalimantan were augmented with the
completion of a new 45 tonnes per hour FFB mill and the
expansion of another mill from 60 to 80 tonnes per hour. Two
newmills – one in South Sumatra and another in Kalimantan –
were commissioned and targeted for completion in 2016. A
200 tonnes per day margarine plant at Tanjung Priok was
completed in 2015. The capacity of the Surabaya refinery
will be increased by 1,000 tonnes per day and will be ready
in 2017.
The Group achieved higher FFB and CPO outputs this year
with the maturing of 5,722 hectares of young palms mainly
from South Sumatra. The continued use of precision
agronomy, GPS and data analysis has enabled us to optimise
CEO’S
STATEMENT
land use, yield and manpower, and improve our operational
productivity overall.
SumBio, our R&D centre in North Sumatra, successfully
cultivated two new variants of oil palm seed material with
high-yield and disease tolerant strains. These will be used
in our own new plantings initially, and sold commercially in
future.
We successfully implemented the mechanisation programme
in our sugar plantation in Indonesia this year. Mechanised
cane harvesting was increased from 25% to 50% of the
estate, while 80% of the cane was planted mechanically as
compared with just 20% the year before. By following a pre-
set grid optimised for planting and movement of the GPS-
guided planters and harvesters, we are able to increase
the effective areas for plantings by 10%. The autonomous
machines are also able to operate around the clock to make
up for any disruption in planting or harvesting during the
raining seasons.
Growing market share
In the Edible Oils & Fats (EOF) business, we have stepped up
on product innovation. The EOF Division introduced a new
garlic-flavoured margarine in 2015, the first of several new
flavoured products that would differentiate and expand our
share of the mass consumer EOF market segment. Other
initiatives were ongoing to produce premium cooking oils for
patisseries and the F&B sector.
As part of our commitment to customer service improvement,
we embarked on a review of our supply chain to improve lead-
