Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the 2nd Quarter and Half Year Ended 30 June 2019

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Income Statement

Profit and Loss

NM - Not meaningful.

Consolidated Statement of Comprehensive Income

Comprehensive Income

Balance Sheets

Balance Sheet

Review of Performance

Key Figures for the Group (unaudited)

Review of the Group’s 2Q and 1H 2019 Financial Performance

For 2Q 2019, the Group achieved revenue of US$112.3 million and PATMI of US$6.1 million and 1H 2019 revenue of US$240.6 million and PATMI of US$15.4 million in the Group’s US Dollar (“USD”) reporting currency. This represented Y-o-Y growth of 3.0% and 19.4% for 2Q 2019 while for the 1H 2019 period, Y-o-Y growth of 11.2% and 20.7%.

The profit growth was driven mainly by the higher margin achieved with Gross Profit Margin (“GPM”) higher Y-o-Y by 1.7% point for 2Q 2019 and 1.5% point for 1H 2019 for our Own Brands and Agency Brands products across our markets. For the periods under review, the performance of our Own Brands portfolio reflected our strategic initiative to exit certain low yielding price points in our Value Segment portfolio for the General Trade channel. The long term objective of this initiative is to improve the overall profitability of our Own Brands portfolio although in the short term it will have an impact on sales in Indonesia.

Excluding the impact of these Value Segment products exited, our Group sales in Indonesia would have been higher by 15.0% Y-o-Y in 2Q 2019 and 22.6% in 1H 2019.

Continuing the positive momentum from FY2018, our Own Brands sales increased 11.5% Y-o-Y in 1H 2019 with the growth driven by the strong demand for our products in the premium format category mainly in Indonesia. Excluding the pruned value products, the sales growth would have been higher by 21.1%. Our Own Brands sales continue to be the major contributor to our business, forming more than 65.0% of the Group’s revenue. Over the years, we have progressively expanded our Own Brands product portfolio and today it extends into the categories of chocolate confectionery, biscuits and wafers, breakfast, beverages and baking.

In 2Q 2019, our Agency Brands business across our markets achieved Y-o-Y revenue growth of 13.4% with 1H 2019 registering a growth of 10.5%. However, the underlying performance for 1H would be higher at 14.2% as sales of Van Houten in Indonesia from 2Q 2018 have been reclassified as Own Brands.

The Group generated 1H 2019 EBITDA of US$31.4 million which represents Y-o-Y growth of 14.7% on the back of higher sales with higher GPM achieved. The improved margin reflected the increased sales of our higher margin premium products in Indonesia amidst pruning of unprofitable value products and ongoing cost containment initiatives.

The Group’s 1H 2019 PATMI of US$15.4 million was higher Y-o-Y by 20.7%. Included in PATMI was the following exceptional item - US$0.2 million of fees incurred in relation to the ongoing legal and professional work related to the improper and unsubstantiated transactions discovered in the Philippines, which was disclosed previously in 2Q 2018. Excluding this, the Group’s 1H 2019 PATMI growth would have been 18.0%.

For 1H 2019, the Group generated Free Cash Flow of US$15.1 million on the Group’s higher profitability, tighter control of working capital and lower capital expenditure. In addition, the Group’s cash balance at 30 June 2019 of US$53.7 million is more than adequate to support the Group’s foreseeable near term business and investment needs.

Performance Review by Markets


For 1H 2019, our business in Indonesia achieved revenue of US$175.2 million, an increase of 11.8% Y-o-Y in the Group’s USD reporting currency. The main growth drivers were our premium brands of SilverQueen, Delfi Premium and Selamat which registered growth in excess of 20% as a result of the success of our promotional programmes to capture the strong consumer demand for Valentine’s Day and the Muslim Lebaran festivities. Excluding the impact of the value segment products pruned, the revenue growth would be higher at 22.6%.

For our Own Brands portfolio, we have and will focus on strengthening our core brands through the introduction of unique products and extending further into the snacking segment while strengthening our value segment in the General Trade channel.

The sales performance of our Agency Brands sales was higher Y-o-Y by 15.0% in 1H 2019. This reflected the reclassification of “Van Houten” sales to Own Brands. Adjusted for this, our Agency Brands sales would have reflected instead growth of 23.1% Y-o-Y for 1H 2019 with the double digit growth achieved for some of our core Agency Brands in confectionery and snacking, and breakfast categories. The growth achieved was also driven by price increases implemented for selected Agency Brands to mitigate the impact of the weaker Indonesian Rupiah in 3Q 2018.

The Regional Markets

For our Regional Markets, revenues for 1H 2019 were higher Y-o-Y by 9.5%. The growth was mainly attributed to higher sales in Malaysia and sales of the Van Houten products in our Regional Markets. For our Regional Markets, Van Houten contributed US$2.3 million in sales while in the Philippines, Goya Mini Tubes, Goya Spread and Defi Premium continue to deliver double digit growth.

Review of Profitability

For 1H 2019, the Group generated EBITDA of US$31.4 million, higher Y-o-Y by 14.7% on the back of higher revenue achieved by the Group; and improvement in our Group’s GP Margin.

For 1H 2019, the Group achieved a GP Margin of 36.0% (higher Y-o-Y by 1.5% point). This is the highest level achieved over the last three years despite the currency headwinds faced. This improvement can be attributed to the higher sales of our premium products amid ongoing efforts to strengthen our value segment in the General Trade channel and our cost containment initiatives. To mitigate the impact of higher input costs, we had implemented a product resizing programme on some of our Own Brands products as well as price increases in 3Q 2018 for selected Agency Brands.

For Own Brands, our ongoing strategy to mitigate higher input costs includes a combination of the following: pro-active price adjustments and product right-sizing and reformulation; launches of new higher margined products; and cost containment initiatives. In addition, the strategy of buying forward our main raw material requirements in a timely manner continue to lock-in forward costs to a major extent thus providing greater cost visibility and margin stability.

The Group’s EBITDA growth of 14.7% for 1H 2019 was achieved despite sales and distribution costs remaining high as a percentage of sales. The increase in Selling and Distribution costs reflected higher promotional spending targeted to drive consumer buying during the Valentine’s Day and Hari Raya/Lebaran festive celebrations. The higher costs also reflected our investments to grow our shelf space presence across all retail channels for our strategic brands and in-store promotions to increase consumer sales in Indonesia.

The Group achieved 1H 2019 EBITDA margin of 13.1% (higher Y-o-Y by 0.4% points) on higher GP Margin.

Update on Claims Associated with the Disposal of Delfi Cacau Brasil Ltda.

By way of background, on 24 February 2015, the Company had announced that Barry Callebaut had notified the Company of various claims from the Brazil tax authorities (“Notifications”) against the former Delfi Cacau Brazil Ltda (“DCBR”), which Barry Callebaut purchased as part of the sale of the Cocoa Ingredients business. In the Company’s announcement made on 28 August 2015, the Company also pointed out that although the Settlement Agreement fully settled the dispute over the closing price adjustments, Barry Callebaut remained entitled to bring any further claims that may arise under the continuing warranties.

As previously announced, the Company was notified of a total of 9 claims associated with the disposal of DCBR totalling BRL 87,002,187 as of 31 December 2016. In FY2016, the Group recognised an exceptional charge of US$2.0 million pertaining to the claims. In FY2017 and FY2018, the Company were not notified of any further claims. At 30 June 2019, the Company’s total exposure in respect of tax and labour claims in Brazil is BRL 85,298,932 (equivalent to US$22.2 million based on end-June 2019 exchange rate).

The Company, while reserving its rights in relation to the Notifications, has requested Barry Callebaut to defend these claims and the cases are proceeding through the Administration and Judicial processes in Brazil. The Board and management believe there are grounds to resist these claims and the Company will keep the shareholders updated as to material developments in relation to the Brazilian claims.

In assessing the relevant liabilities, management has considered, among other factors, industry developments in the current financial year and the legal environment in Brazil, and assessed that the amounts recognised in respect of these claims are adequate as at 30 June 2019. As management considers the disclosure of further details of these claims can be expected to prejudice seriously the Group’s position in relation to the claims, further information has not been disclosed in the Group’s financial statements.

Review of Financial Position and Cash Flow

As at 30 June 2019, the Group and Company’s cash balance was US$53.7 million and US$46.7 million respectively after paying a final dividend of US$4.95 million in May 2019. The cash balance is sufficient to support the Group’s foreseeable near term business and investment needs together with any contingent liabilities.

Compared to end-2018, total assets and shareholders’ equity were higher by US$11.6 million and US$13.9 million respectively reflecting mainly: (1) higher profitability achieved; (2) an increase in working capital; and (3) the foreign currency translation gain. The Group has utilised its operating cash flow of US$31.8 million to fund its higher working capital and repay its borrowings.


Although the operating environment is expected to become even more challenging with intensifying competition, and growing demands from trade customers and consumers, the Group’s focus is to continuously work closely with our trade customers and partners to grow our business by ensuring that our brands are always available, properly displayed and at the right price points. We will focus our brand building initiatives and trade promotions for our core products while ensuring that our products continue to maintain significant shelf space presence. In addition to growing our sales, we will focus on driving cost efficiencies throughout our organisation and especially our supply chain.

Through our continued focus on top line expansion by further growing our core premium brands, extending into the snacking category and strengthening our value segment in the General Trade channel; and stepped up productivity efforts, we are cautiously optimistic about the growth prospects of FY2019.

Over the long term, we believe the consumption environment in our markets will continue to be supported by robust economies and the growing middle income classes. To capture the growth opportunities and drive the long term growth of our business, we will work to:

  1. Grow our key brands in our markets. Innovation remains a key part of this strategy, whether it is through product innovation in order to provide us with a competitive edge or through continuous marketing reinvention to stay relevant by creating excitement at the shelf space while focusing on the core brands and products that can deliver growth in sales and margins;

  2. Extend market reach by having better channel segmentation for both the Modern Trade and General Trade retail formats in order to widen and strengthen our distribution coverage to capture the growth opportunities; and

  3. Prudently invest to build capacity and capabilities where there are clear expansion opportunities into new and attractive categories; and increase our productivity and efficiency targets in our production and distribution infrastructure.

To add further value over the longer term to our quality earnings, we will continue to explore opportunities to enter new markets and to extend to new categories if suitable acquisitions or partnerships meet our investment criteria.