Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the 3rd Quarter and 9 Months Ended 30 September 2018

Financials Archive

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Income Statement

Profit and Loss

Consolidated Statement of Comprehensive Income

Comprehensive Income

A statement of financial position

Balance Sheet

Review of Performance

Key Figures for the Group (unaudited)

Review of the Group’s 3Q and 9M 2018 Financial Performance

Continuing from 1H 2018’s positive momentum, the Group achieved revenue of US$102.7 million and PATMI of US$4.0 million for 3Q 2018, representing Year-on-Year (Y-o-Y) growth of 17.0% and 19.2% respectively, in the Group’s US Dollar reporting currency. For 9M 2018, revenue and PATMI totalled US$319.1 million and US$16.7 million respectively.

The growth achieved, despite the weakness in the regional currencies (especially the Indonesian Rupiah and Philippine Peso), can be attributed to higher Own Brands sales reflecting the benefits of our growth initiatives implemented over the past two years and the growing chocolate confectionery markets in Indonesia and the Philippines. For the Group, Own Brands products continue to be the major contributor to our business, forming more than 60% of revenue. Over the years, our portfolio of Own Brands has progressively expanded and today extends into the categories of chocolate confectionery, biscuits and wafers, breakfast, beverages and baking.

For the periods under review, the Group’s sales of Own Brands products were higher Y-o-Y by 19.3% and 18.1% for 3Q and 9M 2018 respectively in the Group’s US Dollar reporting currency (or in Local Currency terms, Y-o-Y growth of 29.1% and 23.2% respectively). The growth of Own Brands was driven mainly by our product portfolio in Indonesia which increased over 20% Y-o-Y reflecting the following:

  1. Higher sales growth of our products in the premium format category; and
  2. Benefits from our initiative of direct shipments to some of our retail customers.

In 3Q 2018, our Agency Brands business across our markets achieved Y-o-Y revenue growth of 13.3% driven mainly by our businesses in Malaysia and the Philippines which achieved double digit growth. To provide better clarity on the performance of Agency Brands, the following should be highlighted - (i) For Indonesia, sales of Van Houten products are now classified as Own Brands; and (ii) the performance for Philippines reflected the discontinuation of some less profitable Agency Brands. Hence, adjusted for these, our Agency Brands’ fundamental underlying sales performance would have reflected a Y-o-Y growth of 21.8% Y-o-Y, in the Group’s US Dollar reporting currency.

The Group’s profitability in 3Q and 9M 2018 was as follows:

  1. EBITDA (excluding the exceptional/non-recurring items) of US$10.4 million and US$37.9 million - Y-o-Y growth of 11.2% and 13.9% respectively in the Group’s US Dollar reporting currency (or in local currency terms, growth of 23.4% and 19.3%).
  2. PATMI (excluding the exceptional/non-recurring items) of US$4.4 million and US$17.6 million - Y-o-Y growth of 31.2% and 26.1% in the Group’s US Dollar reporting currency (or in local currency terms, growth of 50.6% and 33.3%).

The Group’s financial position remains strong with cash balance of US$51.3 million at 30 September 2018 which should adequately support the Group’s foreseeable near term business and investment needs.

Performance Review by Markets


Our business in Indonesia achieved 3Q 2018 revenue of US$72.4 million and 9M 2018 revenue of US$229.2 million, higher Y-o-Y by 16.3% and 14.2% respectively, in the Group’s US Dollar reporting currency. The main driver of growth was Own Brands sales which grew in excess of 20% for the periods under review. The growth can be attributed to higher sales achieved by our premium brands of SilverQueen, Delfi Premium, Selamat, Ceres and Cha Cha.

With our acquisition of the exclusive and perpetual rights to the Van Houten brand, sales of Van Houten products, since 2Q 2018, have been reclassified to Own Brands sales whereas in prior periods they were classified as Agency Brands. For 9M 2018, Van Houten sales in Indonesia were higher Y-o-Y by 4.8%.

In addition to continued growth in the consumption of chocolate confectionery, the sales growth generated by our portfolio of Own Brands products reflected the benefits of the growth initiatives that we have implemented over the past two years. Initiatives like (i) focusing on higher sales velocity and/or margin performance products; (ii) withdrawing lower performing SKU’s; and (iii) reorganizing our supply chain management, for example, implementing direct deliveries to the distribution centres of some of our Modern Trade customers. The supply chain reorganization has resulted in increased service levels to these customers and increased the speed to market for our products, albeit with higher working capital commitments.

Our objective is to maintain a high level of product availability and ensure that our products continue to maintain significant shelf space presence.

To position our business for long term success, we focused our spending on building our brands and focused on where the strongest growth opportunities are. Innovation for Own Brands remains a key priority for us and our objective is to reach many more consumers by developing products that will address different consumer needs at different price points (e.g. our Ceres Spread, Zap, Buzza and Cha Cha novelty tubes). Our new product introduction programme will continue for the remainder of 2018.

In addition, we continued investing in our sales force and in our routes-to-market capabilities to develop a distribution network that can quickly respond to the constantly evolving retail landscape both in Indonesia and our Regional Markets to ensure that our Own Brands portfolio continues to maintain a significant shelf space presence. Our objective is to continue improving service levels to all our retail customers.

The sales performance of our Agency Brands sales in Indonesia reflected the reclassification of “Van Houten” sales to Own Brands. Adjusted for this, Agency Brands sales would have been higher Y-o-Y by close to 19.1% with the double digit growth achieved for some of our core Agency Brands in confectionery and snacking, and breakfast categories.

The Regional Markets

For our Regional Markets, revenues for 3Q 2018 and 9M 2018 were higher Y-o-Y by 18.7% and 11.2% respectively in the Group’s US Dollar reporting currency. The growth was mainly driven by higher sales in Malaysia while growth of Own Brands sales in the Philippines reflected our “Goya - A Taste of World Class, Everyday” marketing campaign. Agency Brands sales in the Regional Markets were, however, negatively impacted by the discontinuation of two major Agency Brands - one in the Philippines (effective June 2017) and one in Malaysia (end-2017). Excluding the discontinued Agency Brands, Regional Markets’ 3Q 2018 sales would have been higher 20.7%.

Review of Profitability

On the back of the revenue achieved, the Group generated EBITDA (excluding exceptional/nonrecurring items) of US$10.4 million and US$37.9 million for 3Q and 9M 2018 respectively. The underlying performance reflected: (i) the higher revenue achieved; and (ii) for 9M 2018, the improvement in Gross Profit Margin in 1H 2018. For 3Q 2018, Gross Profit Margin was lower Yo-Y by 0.8% point on the back of higher raw material costs as a result of the currency headwinds faced. For example, the Indonesian Rupiah in 3Q 2018 weakened against the US Dollar by an average of 8.8%.

To mitigate the impact of higher input costs, we had implemented a product resizing programme on some of our products in 3Q 2018.

For Own Brands, our ongoing strategy to tackle higher input costs includes a combination of the following: pro-active price adjustments and product right-sizing, launch 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 serves to lock-in forward costs to a major extent thus providing greater cost visibility and margin stability.

The Group’s EBITDA growth of 11.2% and 13.9% for 3Q and 9M 2018 respectively was achieved despite sales and distribution costs remaining high as a percentage of sales. In Indonesia, we continue to invest in our brand building initiatives and in our routes-to-market capabilities, which we believe is necessary as we continue to strengthen our distribution infrastructure to support long term growth. The Y-o-Y increase in administrative expense in 3Q 2018 reflected mainly the costs incurred for implementation of the SAP system.

As a result of the improper transactions uncovered in the Philippines, an exceptional charge of US$0.4 million in 3Q and US$0.9 million in 9M 2018 were recognized, and the 9M 2017 income statement has also been restated to record an exceptional charge of US$1.0 million.

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 totaling BRL 87,002,187 as of 31 December 2016. In FY2016, the Group recognized an exceptional charge of US$2.0 million pertaining to the claims. Since then, the Company has not been notified of any further claims. At 30 September 2018 the Company’s total exposure in respect of tax and labour claims in Brazil has reduced to BRL 83,496,240 (equivalent to US$20.6 million based on end-September 2018 exchange rate) primarily due to a refinement of the basis used for indexation.

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 recognized in respect of these claims are adequate as at 30 September 2018. 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 September 2018, the Group and Company had a healthy cash balance of US$51.3 million and US$43.3 million respectively after the two dividend payments in 2018, totaling US$10.1 million, and the acquisition of the exclusive and perpetual rights to “Van Houten” chocolate brand for US$13.0 million. The cash balance will be sufficient to support its foreseeable near term business and investment needs together with any contingent liabilities.

Despite the 9M 2018 Net Profit of US$16.7 million, shareholders’ equity decreased by US$8.2 million as a result of the 9M 2018 foreign currency translation loss of US$14.8 million. This is due to the depreciation of the Indonesian Rupiah and Philippine Peso during the period under review; coupled with the dividend payouts.

For 9M 2018, the Group generated an operating cash flow of US$37.7 million which was utilized to fund the Group’s higher working capital needs and its capital expenditure on property, plant and equipment and the SAP project totalling US$5.0 million. The higher working capital was due mainly to an increase in trade receivables of US$15.9 million. This reflected higher sales to Modern Trade customers which have longer trading terms as the Group progressively covers the direct distribution to minimarkets customers. The increase in trade receivables was partially offset by lower inventories of US$4.3 million.


The strategic restructuring of our organization, product portfolio, and routes-to-market implemented over the last two years are continuing to yield the desired results. We are fully committed to the broad strategy of consolidating our core strengths, containing operational costs and investing in core brands and key markets in order to grow our business sustainably over the long term.

In 2018, the Group’s focus will be 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 onto 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 organization and especially our supply chain. To mitigate the impact of higher input costs as a result of the continued weakness in regional currencies, we will continue our product resizing programme whilst launching higher margined products. In addition, we will assess implementing price increases where appropriate.

Through this combination of top line focus and stepped up productivity efforts, we expect, barring unforeseen circumstances, the Group’s operations to provide longer term stability and profitability. We will further strengthen the Group’s cash flow generation through focused capital expenditure.

To drive the growth of our business, we will work to:

  1. Ensure that our organization is well aligned to our growth plans and successful in implementing our strategies in Indonesia and our Regional Markets;
  2. 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 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;
  3. Extend market reach by having better channel segmentation for both the Modern Trade and Traditional Trade formats in order to widen and strengthen our distribution coverage to capture the growth opportunities; and
  4. 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.

Over the long term, we believe the consumption environment in our markets will continue to be supported by robust economies and the fast growing middle income classes. 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.