Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the 2nd Quarter and Half Year Ended 30 June 2018

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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 2Q and 1H 2018 Financial Performance

Following on from 1Q 2018's positive momentum, the growth achieved by the Group in 2Q and 1H 2018 can be attributed to the growing chocolate confectionery markets in Indonesia and the Philippines; and higher Own Brands sales and margins achieved.

The Group generated revenue of US$109.1 million in 2Q 2018 which culminated in 1H 2018 revenue of US$216.4 million. This represented Y-o-Y growth of 8.5% and 11.7% for 2Q and 1H 2018 respectively, in the Group's US Dollar reporting currency.

The key driver of the Group's revenue was sales of Own Brands products - Higher Y-o-Y by 13.5% and 17.5% for 2Q 2018 and 1H 2018 respectively. 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, Own Brands revenue growth was driven mainly by our product portfolio in Indonesia. This performance reflected continued growth in the consumption of chocolate confectionery, higher sales growth of our products in the premium format category and benefits from our initiative of direct shipments to some of our retail customers.

For Agency Brands, our business in Malaysia achieved strong double digit growth although this was offset by reported weaker performance in Indonesia and the Philippines. To provide clarity on the fundamental underlying Y-o-Y performance in these two markets, the following must be highlighted - (i) For Indonesia, sales of Van Houten products are now classed 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 16.6% Y-o-Y, instead of the reported flat performance.

The Group generated EBITDA (excluding the exceptional/non-recurring items) of US$13.1 million in 2Q 2018 and 1H 2018 of US$27.4 million, representing Y-o-Y growth of 11.2% and 14.9% respectively. In addition to higher sales achieved, the other key driver of growth was higher Gross Profit Margin. The Group's 2Q and 1H 2018 Gross Profit Margin of 34.5% improved Y-o-Y by 1.4% point reflecting increased sales of our higher margin premium products in Indonesia, and our on-going cost containment initiatives.

For 2Q and 1H 2018, the Group's PATMI (excluding the exceptional/non-recurring items) was higher Y-o-Y by 14.4% and 24.5% respectively. This growth was achieved despite a higher effective tax rate which can be attributed to a withholding tax charge of US$0.3 million and US$1.7 million recorded on dividend and royalty income received from our Indonesian entities in 2Q and 1H 2018, compared to US$0.4 million and US$1.0 million for 2Q and 1H 2017.

The Group's financial position remains strong with cash balance of US$53.8 million at 30 June 2018 which is more than adequate to support the Group's foreseeable near term business and investment needs.

Performance Review by Markets


Our business in Indonesia generated 2Q 2018 revenue of US$80.6 million which was higher Y-o-Y by 9.5% with 1H 2018 revenue growth of 13.3% achieved. The main driver was Own Brands sales (generating Y-o-Y growth of 20.1% in 1H 2018) with strong performance from our brands in the premium segment like SilverQueen, Cha Cha and Delfi Premium products.

In 2Q 2018, sales of Van Houten has been reclassified to Own Brands sales whereas in prior periods they were classed as Agency Brands. For 2Q and 1H 2018, Van Houten sales in Indonesia were higher 18.5% and 9.6% respectively. Excluding this, our Own Brands sales in USD reporting currency would have been higher by 9.1% and 16.7% respectively.

The sales growth of our portfolio of Own Brands products reflected the continued growth in the consumption of chocolate confectionery and our growth initiatives implemented. Initiatives like (i) focusing on higher sales velocity and/or margin performance products; and (ii) reorganizing our supply chain management, for example, implementing direct deliveries to the distribution centres of some of our Modern Trade customers. The supply change 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 refocused 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 into 2H 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

As discussed on page 22, 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 12.0% 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 2Q 2018 were higher by 5.8% Y-o-Y in the Group's USD 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' 2Q 2018 sales would have been higher 13.6%.

Review of Profitability

On the back of the revenue of US$216.4 million, the Group generated EBITDA (excluding exceptional/non-recurring items) of US$27.4 million for 1H 2018. The underlying performance reflected: (i) the higher revenue achieved; and (ii) improvement in margins. The Group's 1H 2018 Gross Profit Margin improved by 1.4% point to 34.5% on the back of higher sales of our premium products and our on-going cost containment initiatives.

In addition to the Gross Profit Margin improvement, the Group generated EBITDA margin of 12.7% which was higher by 0.4% point Y-o-Y. The improvement in EBITDA margin was achieved despite selling and distribution costs remaining high as a percentage of the Group's 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.

As a result of the alleged improper transactions uncovered in the Philippines, an exceptional charge of US$0.5 million in 2Q and 1H 2018 was recognized, and the 1H 2017 income statement has also been restated to record an exceptional charge of US$1.0 million. For more details, please see Note 3 on page 3 and 4.

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 June 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$21.5 million based on end-June 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 June 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 June 2018, the Group and Company maintains a healthy cash balance of US$53.8 million and US$48.2 million respectively after making a FY2017 final dividend payment of US$3.5 million (see paragraph 1(d)(i) on page 12) , and an acquisition of perpetual rights to “Van Houten” chocolate brand US$13.0 million (paragraph 1(b) Note 1 on page 6). The cash balance will be sufficient to support its foreseeable near term business and investment needs together with any contingent liabilities

Despite a 1H 2018 Net Profit of US$12.7 million, shareholders' equity decreased by US$0.7 million. This resulted from a 1H 2018 foreign currency translation loss of US$9.8 million due to a depreciation of the Indonesian Rupiah during the period under review; coupled with the final dividend payout.

For 1H 2018, the Group generated an operating cash flow of US$27.4 million which was utilized to fund the Group's higher working capital needs and its capital expenditure on property, plant and equipment and SAP project of US$2.4 million (see paragraph 1(b) Note 2 and 3 on page 6). The higher working capital was due mainly to an increase in trade receivables of US$17.7 million. This reflected higher sales to Modern Trade customers which have longer trading terms as the Group progressively cover the direct distribution to minimarkets as well as a slowdown in collection during festive holidays in end June (see paragraph 1(b) Note 3). The increase in trade receivables was partially offset by lower inventories of US$5.3 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 refocus 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. 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.