Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the Quarter Ended 31 March 2017

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Income Statement

Profit and Loss

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 1Q 2017 Financial Performance

The Group reported revenue of US$93.1 million and PATMI of US$5.6 million for 1Q 2017.

The Group’s 1Q 2017 sales performance was affected by the on-going product portfolio rationalization exercise which was implemented in 2016, and an on-going review of trading terms. The product rationalization programme is an initiative we have undertaken to eliminate lower performing SKU’s so that we can focus on our core brands and products, and drive forward higher margin products. In the short term, there is an impact on sales and profitability but this is a stronger base to grow from.

In addition, the sales in Indonesia in 1Q 2016 reflected higher than usual deliveries to our trade customers as they undertook a programme to replenish their supply pipeline which in 2015 had been reduced as they minimized orders in reaction to the weak consumption environment in Indonesia.

For the Regional Markets, the higher 1Q 2017 sales achieved can be attributed to higher Agency Brands sales although Own Brands sales achieved reasonable growth despite the on-going product rationalization exercise.

On the back of the lower sales, the Group’s EBITDA was lower by 16.2% Y-o-Y. The Group’s 1Q 2017 Gross Profit Margin of 33.0% improved by 1.1% point Y-o-Y reflecting lower input costs which offset higher depreciation following the completion of the new production building in Bandung in August last year.

The Group’s PATMI of US$5.6 million (▼33.4% Y-o-Y) reflected a higher effective tax rate on the back of higher withholding tax paid by the Company on dividend and royalty income received from its Indonesian subsidiaries.

For 1Q 2017, the Group generated Free Cash Flow of US$8.1 million (higher Y-o-Y by 20.9%) which was utilized to reduce borrowings. In addition, the Group’s cash balance of US$67.6 million at 31 March 2017 is adequate to support the Group’s foreseeable near term business and investment needs.

Performance review of Own Brands and Agency Brands

For 1Q 2017, Own Brands sales continued to be a major contributor to the Group’s business, forming more than 60.0% of the Group’s 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, baking and beverages.

To illustrate the underlying performance of our Own Brands sales (i.e. in local currency and excluding the products rationalized), our Own Brands sales in Philippines would have grown close to 5.0% although this was unable to offset the lower Own Brands sales in Indonesia.

For 1Q 2017, overall Agency Brands sales (in local currency) increased close to 5.0% driven mainly by growth achieved in Malaysia and the Philippines. Agency Brands sales in Indonesia were affected by higher trade discounts implemented.

Performance Review by Markets


The 1Q 2017 sales generated by our business in Indonesia were lower Y-o-Y by 14.7% in the Group’s USD reporting currency which was partly the result of our product rationalization initiative for Own Brands in order to focus on our core brands and products; and an on-going review of trading terms.

In addition, the sales in 1Q 2016 reflected higher than usual deliveries to our trade customers as they undertook a programme to replenish their supply pipeline which in 2015 had been reduced as they minimized their orders on the back of the weak consumption environment in Indonesia.

Based on shelf space data in Indonesia, consumer demand for our core “SilverQueen”, “Cha Cha” and “Selamat” brands remain positive which we believe will continue into the coming quarters.

To position our business for long term success, we increased our spending to build our core brands and focused on where the strongest growth opportunities are. Innovation for our Own Brands remains a key priority for us and our objective is to reach many more consumers by developing innovative products that will address different consumer needs at different price points.

In addition, we continued investing in our sales force and in our routes-to-market capabilities to develop a more agile, flexible and faster distribution network to respond to the constantly evolving retail landscape both in Indonesia and our Regional Markets. We are extending market reach by having better channel segmentation to access Modern Trades, especially the minimarts, and widening our distribution coverage nationwide. The strengthening of trade partnerships is also one of our key objectives.

The Regional Markets

For our Regional Markets, revenues were higher Y-o-Y by 2.7% in 1Q 2017 in the Group’s USD reporting currency. However, in local currency terms, 1Q 2017 revenue growth of 8.1% was achieved.

Review of Profitability

On the back of the revenue of US$93.1 million in 1Q 2017, the Group generated EBITDA of US$12.0 million (lower Y-o-Y by 16.2%) and PATMI of US$5.6 million in the Group’s USD reporting currency.

The lower profit for 1Q 2017 can be attributed to the lower sales achieved. The 1Q 2017 Gross Profit Margin of 33.0% (higher 1.1% points Y-o-Y) achieved, despite higher depreciation cost, can be attributed to:

  1. The benefit of the pricing adjustment and trimming of portion sizes for selected products in Indonesia in 3Q 2015 and 2Q 2016; and
  2. Our on-going cost containment initiatives.

The lower 1Q 2017 Gross Profit Margin vs 4Q 2016 can be attributed mainly to the lower production volume on weaker sales, lower sales of premium products in Indonesia compared to 4Q 2016; and higher trading cost (i.e. discounts and rebates) in the Regional Markets.

For Own Brands, our ongoing strategy to tackle higher input costs includes a combination of the following: proactive price adjustments and product right-sizing, launching of higher margined new products and cost containment initiatives. Furthermore, 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. We will also continue to drive to achieve higher sales volume and increase efficiency and reduce costs in the supply chain.

For 1Q 2017, selling and distribution costs remained high (as a percentage of the Group’s sales) as a result of continued investments in our brand building initiatives and as we strengthened our routes-to-market capabilities, which we believe is necessary as we continue to strengthen our infrastructure to support the Group’s long term growth. 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 generate consumer sales in Indonesia.

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

We refer to the announcements made on 21 October 2013, 17 December 2013, 24 February 2015 and 28 August 2015 on disputes that had earlier arisen between the Company and Barry Callebaut.

On 28 August 2015, the Company announced that it had entered into a Settlement Agreement with Barry Callebaut as regards the disputes and the resulting arbitration that had been commenced by the Company against Barry Callebaut in relation to adjustments to the closing price that had been paid by Barry Callebaut to the Company. The Company had also announced that as part of the settlement, the parties had mutually agreed to terminate the SPA dated 28 August 2015 although the parties agreed that certain environmental, tax and other warranties would continue (of which the environmental and tax warranties are time-limited).

On 28 August 2015, the Company also announced that the Brazilian tax claims (which were previously announced on 24 February 2015) would continue to be contested. On 24 February 2015, the Company had announced that Barry Callebaut had notified the Company of various claims from the Brazil tax authorities 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.

The Company wishes to add that on 20 December 2016, it received notifications (in Portugese) of new Brazilian tax claims (‘the Notifications’) which were sent to the Company by Barry Callebaut, which are as follows:

  1. A new claim of BRL 12,751,426/- in connection with tax assessment of the “Social Integration Program / Public Employee Savings Program (PIS)” and the “Contribution for the Financing of Social Security (COFINS)”;
  2. 2 separate new claims of BRL 29,177,666/- and BRL 1,270,319/- respectively for allegedly unpaid tax duties arising from the import of cocoa beans; and
  3. 2 new claims of BRL 297,830/- and BRL 155,334/- respectively, for allegedly incorrect or ‘over stating’ credits due arising from tax assessments from prior years.

Through its advisors and consultants, the Company has checked the Notifications. The Company has requested Barry Callebaut to defend these new tax claims, as Management believes that there are grounds to resist these claims.

The Company also wishes to highlight that the existing tax claims previously announced or disclosed, have been revised by the local authorities or that these have progressed as follows:

  1. The claim of BRL 18,588,594/- in connection with a tax assessment of the PIS/COFINS, has been revised to BRL 23,063,648/-;
  2. The claim of BRL 227,440/- for unpaid import tax arising from the import of a bean roaster, has been revised to BRL 953,992/-;
  3. The claim of BRL 15,643,285/- for the restitution of taxes and import duties arising from the import of cocoa beans, has been revised to BRL 19,331,972/-; and
  4. The unquantified claim based on a Labour complaint on account of DCBR having “outsourced” work it allegedly should not have outsourced to ‘contract workers’, has been referred on appeal to the 2nd level judicial court.

Taking into account the revisions made to the quantum of the tax claims, the existing claims which amounted to BRL 34,459,319/-, have been revised to BRL 43,349,612/- (equivalent to US$13,752,291/- based on end-March 2017 exchange rate). Taking into account all new claims and existing claims, the Company’s total exposure in respect of tax and labour claims in Brazil amount to BRL 87,002,187/- (equivalent to US$27,600,694/- based on end-March 2017 exchange rate).

The Company will keep the shareholders updated of material developments in relation to the existing and new Brazilian claims.

While reserving its rights in relation to the Notifications, the Company has requested Barry Callebaut to defend these claims. There are grounds to resist these 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 31 December 2016. 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 of end March 2017, the Group continues to maintain a healthy cash balance of US$67.6 million. The cash balance will be sufficient to support its foreseeable near term business and investment needs together with any contingent liabilities.

The Company’s shareholders’ equity was higher by US$6.8 million for the quarter on 1Q 2017’s Net Profit of US$5.6 million and the foreign exchange translation gain of US$1.1 million.

For 1Q 2017, the Group generated an operating cash flow of US$12.1 million which was utilized to fund its capital expenditure of US$3.1 million. The positive free cash flow of US$8.1 million was used to further reduce its borrowings by US$8.2 million. This resulted in an improvement in current ratio and a reduction in total assets by US$4.1 million during the quarter.


It is unclear at this stage how prolonged the present economic and currency volatility in our core markets will be. As a result, we believe consumers and retailers in our markets will continue to face tough conditions with economic uncertainty likely to weigh on consumer confidence.

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. Furthermore, we will continue to invest in innovation for our core Own Brands as this remains a key priority for us with our objective to reach many more consumers by developing innovative products that will address different consumer needs at different price points.

In addition to growing sales of our continuing Own Brands products to replace sales lost due to the product portfolio rationalization, we will focus on driving cost efficiencies throughout our organization and our supply chain. Through this combination of top line focus and stepped up productivity efforts, after taking into account our 1Q 2017 results and the gain from the disposal of our 50% stake in PT Ceres-Meiji Indotama which is expected to be completed in 2Q 2017, we expect, barring unforeseen circumstances, the Group’s financial performance in FY2017 to be similar to FY2016. We will further strengthen the Group’s cash flow generation through tighter working capital management and focused capital expenditure.

To sustain profitable growth over the longer term, despite the challenging environment and intensifying competition, we are continuously taking actions to further strengthen our business to capture the significant growth opportunities and find new paths to grow. These include:

  1. Ensuring our organization is well aligned to our growth plans;
  2. Making targeted and disciplined investments to 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 the competitive edge or through continuous reinvention to stay relevant by creating excitement at the shelf space in order to further reinforce the position of our core brands;
  3. Implementing a multi-channel strategy to adapt to the continuously evolving retail landscape where our objectives are to further broaden and deepen our routes-to-market in order to capture the growth opportunities; and
  4. Prudently invest to build capacity and capabilities where there are clear expansion opportunities and increase our productivity and efficiency targets in our production and distribution infrastructure.

Despite the current uncertainties in our markets, we believe our geographic and product portfolio positions us well for future growth. Over the long term, the consumption environment in our regional markets will continue to be supported by the robust economies and the fast growing middle income classes. Our success in our core markets is rooted in our undertaking that our organization must always be ready to adapt to changing times and nimble to cope with the fast moving world. 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 these opportunities meet our investment criteria.