Indofood Agri Q3 profit drops 37% on fertilisers and forex

EARNINGS for Indofood Agri Resources - which refines crude palm oil and cultivates sugar cane crops - fell 37 per cent in the third quarter despite higher revenue, dragged lower by higher fertiliser application, higher operating expenses and foreign currency fluctuations.

The group's net profit for the three months ended Sept 30 stood at 100.5 billion rupiah (S$10 million), compared to 159.2 billion rupiah in the year-ago quarter. This translated to earnings of 72 rupiah for each share, down from 114 rupiah a year ago.

Revenue rose 5 per cent to 3.72 trillion rupiah as the group's palm oil output recovered from the El Nino drought in 2016. This growth, however, was outpaced by higher costs, which rose 9 per cent to 2.97 trillion rupiah due to higher fertiliser application.

As a result, gross profit slumped 11 per cent to 748.2 trillion rupiah.

The bottomline was further eroded by an increase in selling and distribution expenses, as well as general and administrative expenses.

Selling and distribution expenses rose 35 per cent over the same period last year due to higher advertising and promotion expenses, as well as higher freight cost.

Meanwhile, the 18 per cent jump in general and administrative expenses was mainly due to higher salaries and employee benefits, said IndoAgri.

On top of these, the group recorded a foreign exchange loss of 21.5 billion rupiah, reversing from a forex gain of 40.3 billion rupiah in the year-ago period, as the Indonesian rupiah weakened slightly against the US dollar during the year.

Looking ahead, IndoAgri said agricultural commodity prices remain volatile, driven by mixed fundamentals and global developments. These include higher supply forecasts for competing vegetable oils and slower demand growth from key markets such as China, as well as geopolitical uncertainties.

The European Union - the third largest palm oil import market - has also recently voted to apply stricter regulations over certified and sustainable vegetable oil, and to phase out the use of vegetable oils such as palm oil, soy and rapeseed for biofuels by 2020, the firm noted.

"Nonetheless, longer term palm prices are expected to be supported by slower production growth arising from slowing down of new plantings," the group said in the results.

IndoAgri said its operations in Indonesia also continue to be supported by a positive domestic economic outlook, large domestic consumption and ongoing fiscal reforms in infrastructure and social security. The country has overtaken India as the largest palm consumer since 2016, consuming about 15 per cent of global palm oil supplies.

The group is building three new mills in line with the growth in palm oil production. One has been completed in May this year; a second one is due to be completed by the end of 2017, and one more next year.

It is also expanding its refinery in Surabaya by 300,000 tonnes a year to meet the increased demand. This will be completed in the first quarter of next year.

"We continue to enhance our operational capacities to capture the growth opportunities, as well as proactively improve operations, increase yields, raise productivity and control costs," said the group.