SIPEF R egulat e d inf o r matio n|D e c e m b e r 2015
Results of the SIPEF group as per 31 December 2015 (12m/15)
- Annual palm oil production rose by 8.4% after a strong fourth quarter (+11.3%).
- Persistently low world market prices for palm oil and rubber were observed.
- Devaluation of local currencies (IDR, PGK and EUR) has helped our constant efforts to manage production costs.
- Low selling prices have resulted in a 64.5% decrease in profit before tax.
- Early implementation of the new standard for biological assets (IAS 41) cancels out past revaluations through equity.
- The net result, group share, amounted to KUSD 19 226, or 60.7% down on 2014.
- As a result of the continuing investment programme, the net free cash flow amounted to KUSD -11 991.
- At current selling prices we expect an even slightly lower result in 2016.
- Proposal for the distribution of a gross dividend of EUR 0.60 per share, in line with the payout ratio of previous years.
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Management report
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Group production
Fourth Quarter Year To Date
2015 (In tonnes) Own Third parties
Palm oil 63 383 13 926
Q4/15
YoY %
11.28%
77 309
Rubber 2 079 136
2 215
-10.25%
Tea 707 0
707
-10.28%
Bananas 5 606 0
5 606
+13.12%
Own Third parties
238 548 52 359
Q4/15
YoY %
8.35%
290 907
9 622 447
10 069
-3.28%
2 726 0
2 726
-3.20%
24 286 0
24 286
+2.93%
2014 (In tonnes)
Palm oil
Own
55 975
Third parties
13 497
Q4/14
69 472
Rubber
2 229
239
2 468
Tea
788
0
788
Bananas
4 956
0
4 956
Own Third parties
219 623 48 865
Q4/14
268 488
9 675 736
10 411
2 816 0
2 816
23 595 0
23 595
The continuing favourable conditions for palm oil production, particularly in the third quarter, persisted in the last quarter, allowing production year 2015 to close with an 8.4% increase on the previous year.
The vigorous overall growth in the fourth quarter (+11.3%) was recorded in particular on our own plantations in Indonesia where, both in the mature plantations in North Sumatra and those in Bengkulu province, palm oil volumes increased by more than 10% compared to the relatively weaker fourth quarter of 2014, which was affected by the delayed effects of the drought. At Hargy Oil Palms in Papua New Guinea, too, the growing maturity of the newly planted areas led to a 8.2% growth, an effect that was observed even more strongly in the young plantations of the UMW/TUM Group in North Sumatra (+35.5%). We can, therefore, safely say that the negative impact of El Niño, which nevertheless was clearly noticeable in the overall output volumes of Indonesia and Malaysia, has left the places where our plantations are located virtually unaffected.
The growth in palm oil volumes from fruit bunches purchased from neighbouring farmers was fairly limited (+3.2%) in the last quarter. The 7.15% increase on an annual basis was primarily attributable to the support programme developed by Hargy Oil Palms and the start of purchases from neighbouring farmers in the UMW/TUM project in North Sumatra.
The operational impact of the two new mills, one in Papua New Guinea and the other in North Sumatra, was also one of the un- derlying reasons for an overall growth in palm oil volumes this year, and especially for the 12.5% increase in palm kernel oil tonnages in Papua New Guinea.
Rubber production volumes on the Indonesian plantations experienced relatively little effect from the El Niño drought, except for the areas in South Sumatra, where production was 27.8% down on the fourth quarter of the previous year. On an annual basis, finished rubber volumes rose by 3.9% in Sumatra and 8.8% in Bengkulu, primarily as a result of improved yields in the mature plantations and extra latex production volumes from areas being replanted. In the rubber plantations of Papua New Guinea, there was a decrease in production from our own trees and volumes sourced from third parties. The persistently low rubber prices give local farmers little incentive to harvest.
Tea production in Java, on the other hand, did experience the effect of the El Niño drought, which strongly inhibited foliation and caused production volumes in both the third and fourth quarters to remain well below (-10.3%) those of the previous year. As a result, the cumulative 11.3% production increase of the first six months was entirely neutralized, ending the year with a slightly negative volume effect of -3.2%.
After adverse climatic conditions in the first six months, banana production in Ivory Coast showed an upward trend with a 13.1% increase on the fourth quarter of the previous year, putting the annual volume 2.9% higher than in 2014.
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Markets
Average market prices
YTD Q4/15
YTD Q4/14
* World Commodity Price Data
in USD/tonne*
Palm oil
CIF Rotterdam
622
Rubber
RSS3 FOB Singapore
1 559
Tea
Mombasa
2 742
Bananas
FOT Europe
903
821
1 958
2 045
1 043
Due to a significant stocks increase in the producing countries, the nearby positions in the palm oil market traded at a discount. Good production up until November and a lack of exports were the main factors that caused stocks in Malaysia to grow to a record
2.9 million tonnes. However, production felt the impact of the El Niño drought in the summer months. From November onwards the monthly production reductions were unprecedented, and in December there was already a strong stock decrease. The negative macro environment, predominantly driven by China, and the slump in petroleum prices put a lot of downward pressure on the palm oil market. As a result the market was very subdued and the market price hovered between USD 555/tonne and USD 610/tonne CIF Rotterdam.
The price of palm kernel oil was very volatile again in the fourth quarter, where the market place seemed to be divided between the fundamental supply and demand situations versus the premium that palm kernel oil was commanding over palm oil. The value of palm kernel oil traded between USD 770/tonne and USD 900/tonne CIF Rotterdam.
The rubber market remained very lacklustre and the Chinese economic unrest in the fourth quarter had a negative effect on rubber prices. The Sicom RSS3 market traded at new lows of around USD 1 220/tonne at the end of the year.
After the black CTC tea market had enjoyed record prices in the third quarter the price dropped in the fourth quarter, as most ur- gent needs were covered and production was back on track in Kenya. The weather in Kenya was supportive of a good crop and this was priced in. The average price was still around USD 3 000/tonne FOB for our Cibuni teas.
- Consolidated income statement
Consolidated income statement
31/12/2015
31/12/2014*
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41: Property, plant and equipment and Agriculture - bearer plants.
In KUSD (condensed)
Revenue
225 935
Cost of sales
-181 740
Gross profit
44 195
Selling, general and administrative expenses
-22 660
Other operating income/(charges)
457
Operating result
21 992
Financial income
81
Financial charges
-820
Exchange differences
62
Financial result
-677
Profit before tax
21 315
Tax expense
-6 339
Profit after tax
14 976
Share of results of associated companies and joint ventures
6 115
Result from continuing operations
21 091
Profit for the period
21 091
Share of the group
19 226
285 899
-206 996
78 903
-25 447
7 363
60 819
181
-870
-11
-700
60 119
-20 262
39 857
12 586
52 443
48 967
52 443
31/12/2015 %
31/12/2014* %
In KUSD (condensed)
Palm
37 921 85.8
Rubber
-1 350 -3.1
Tea
1 715 3.9
Bananas and plants
4 142 9.4
Corporate and others
1 767 4.0
Total
44 195 100.0
Consolidated gross profit
71 828
91.1
1 147
1.5
39
0.0
3 588
4.5
2 301
2.9
78 903
100.0
* The 2014 comparative figures have been restated due to the amendments to IAS 16 and IAS 41: Property, plant and equipment and Agriculture - bearer plants.
In November 2015, the amendments to IAS 16 and IAS 41 - "Property, plant and equipment and Agriculture - bearer plants" were approved for implementation within the European Union from 1 January 2016 at the latest. Consequently,"bearer plants" must again be valued at historical cost instead of at fair value. SIPEFhas opted for the early implementation of this standard to take effect from 1 January 2015. As a result, the balance sheet and income statement of the previous periods have been restated. The impact of those changes on equity, balance sheet and income statement is shown in Note 7.
Total revenue decreased by 21% primarily as a result of a sharp fall in world market prices for palm oil and rubber. Revenue for palm oil was down 22%, despite increased volumes. Rubber declined by as much as 25% owing to the cumulative effect of decreased volumes on top of substantially lower selling prices. Revenue for our tea operations showed a different picture: better prices more than made up for the effect of disappointing production volumes (+13%). The lower revenue in USD terms of our "Euro" banana activities (-10%) is entirely due to the trend of the EUR against the USD.
The cost of sales for palm oil, rubber and bananas remained stable in 2015 or even improved versus 2014 owing to a combination of permanent efforts to control cost prices, increased volumes and a favourable trend of the USD against the currencies of the countries where our activities are located (IDR, PGK and EUR). Only the unit cost of sales for tea increased in relation to the previous year (+4.4%) due to lower volumes and a sharp rise in minimum wages in Indonesia.
The net effect of decreasing revenue and improved cost of sales led to a fall in gross margin from KUSD 78 903 to KUSD 44 195, in which palm oil accounts for 85.8% (91.1% in 2014). The negative gross margin for rubber is entirely attributable to Galley Reach Holdings Ltd in Papua New Guinea. After a difficult 2014, our tea activity recovered with a satisfactory contribution
(KUSD 1 715), while bananas have made a stable and even slightly increasing contribution year by year.
General expenses fell (-10.9%) in line with the trend of the main currencies in which the salaries in our organization are paid, and due to lower provisions for variable result-based remuneration.
Low net financial charges reflect the group's strategy of financing expansion with equity. Foreign exchange results had very limited impact, a direct consequence of a consistently applied hedging policy.
The profit before tax amounted to KUSD 21 315 compared to KUSD 60 119 in 2014, a decrease of 64.5%.
At 29.7%, the effective tax rate was higher than the theoretical tax rate of 26.58% (25% in Indonesia/Ivory Coast, 30% in Papua New Guinea and 34% in Belgium) owing to the fact that we had reversed some deferred tax assets.
The share in the results of associated companies and joint ventures includes the result of PT Agro Muko (KUSD 6 526), PT Tim- bang Deli (KUSD -70), the start-up losses of Verdant Bioscience (KUSD -517), and finally our insurance segment (KUSD 176). The sharp decrease compared to 2014 (-51.4%) was in line with the weakened profitability of the fully consolidated subsidiaries.
The profit for the period amounted to KUSD 21 090 compared to KUSD 52 443 the previous year, a decrease of 59.8%. The net result, group share, amounted to KUSD 19 226, 60.7% down on 2014.
In mid-July 2015 we were unpleasantly surprised by changes in the export tax system in Indonesia, which now also imposes a flat tax of USD 50/tonne on all exports of crude palm oil, even if the price level of USD 750/tonne is not reached. That extra charge diminished our net result, group share, by as much as USD 2.6 million.
Sipef NV issued this content on 18 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 18 February 2016 08:48:18 UTC
Original Document: http://www.sipef.be/pdf/results/2015_year_en.pdf
