IndoAgri ends Q1 with negative working capital as profit tumbles 80.7% on weak sales and rupiah

IndoAgri reported on Thursday that its net profit for the first quarter of 2015 fell 80.7 per cent from a year ago to 35.03 billion rupiah due to lower revenue and foreign exchange losses.

"Soft commodity prices for agriculture crops and a weakened Indonesian Rupiah have directly affected our 1Q 2015 results,'' the Indonesian agribusiness group shared.

Revenue fell 16 per cent to 2.66 trillion rupiah in the first quarter on lower sales contribution from both divisions.

Its plantation division saw total revenue - both inter-segment and external sales - fall 24 per cent to 1.8 trillion rupiah. This is due to the combined effects of lower average selling price and sales volume of crude palm oil (CPO) and palm kernel (PK)).

The group recognised foreign currency losses of 116 billion rupiah in the first quarter compared to 86 billion rupiah gains a year ago. The forex losses in 1Q 2015 was attributed to the weakening of Indonesian rupiah against US dollar and Singapore dollar during the quarter.

IndoAgri reported negative working capital of 979 billion rupiah as of end March 2015.

"The group is currently in the midst of reviewing its funding arrangement to optimize its capital structure and improve the current ratio during the year,'' it said.

Arising from the low season of CPO production in the first quarter 2015, the group generated negative net cash flows from operations of 25 billion rupiah. Other factors included the higher working capital relating to inventories and advances to suppliers in preparation for the peak season.

The group's cash levels declined from 3.6 trillion rupiah as of last year end to 2.5 trillion rupiah as of March 2015.

Looking ahead, it expects long-term demand for basic commodities like palm oil to remain strong, underpinned by growing consumer markets and a rising middleclass.

"We also expect the higher biodiesel blending mandate of 15 per cent, announced by Indonesia's government in March 2015, to sustain domestic demand growth for palm oil products, albeit implementation may take some time. Competition from other CPO producers as well as competing products like soybean will be intense, given the added impetus of lower demand for biodiesel with the fossil fuel price drop.''

On rubber, IndoAgri said the long-term outlook remains optimistic with healthy demand coming from tyre makers, automotive industries and rubber goods manufacturers in developing markets, especially China. But in the medium term prices will remain under pressure until global demand recovers.

As for its sugar operations, IndoAgri said it will continue to evaluate potential acquisitions or joint ventures for operational and international growth.