Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the 3rd Quarter and 9 Months Ended 30 September 2017

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 2017 Financial Performance

After two consecutive quarters of revenue decline, in 3Q 2017 the Group achieved Year-on-Year (“Y-o-Y”) revenue growth of 1.5% (or 4.4% in constant currency terms) with the growth driven by Own Brands sales in Indonesia. This growth, despite the highly competitive environment and the impact of our product rationalization programme, was driven by strong sales of the major Core Brands in our portfolio as we refocused our trade promotions onto our core products while ensuring that our products continue to maintain significant shelf space presence. Our sales performance also reflected the benefits of our initiatives to strengthen partnerships with our retail customers to widen our channel penetration, as well as our on-going initiatives to re-organize our organization structure and routes-to-market.

Our product rationalization programme started end-2015/early 2016, and was progressively implemented through our portfolio and is now substantially completed. Product rationalization is an on-going initiative we undertake to eliminate lower contributing or non performing SKU’s in order to focus on our core brands and products and drive forward higher margined products. However as this time the initiative affected a significant portion of our portfolio both in Indonesia and the Philippines, there is an impact on sales and profitability in the short term but this, we believe, is a stronger base to grow from.

For the Regional Markets, the higher 3Q 2017 sales (in constant currency terms) achieved can be attributed to higher Agency Brands sales in Malaysia although Own Brands sales achieved reasonable growth despite the product rationalization exercise.

The Group in 3Q 2017 achieved a Gross Profit Margin of 34.7% which is higher by 1.6% point compared to 1H 2017 although lower Y-o-Y by 0.8% point. The higher sequential margin achieved can be attributed to our on-going cost containment initiatives and higher sales of our higher margined premium products.

The Group achieved PATMI of US$3.3 million in 3Q 2017, representing a Y-o-Y decline of 44.1% in the Group’s USD reporting currency. However excluding non-recurring items, PATMI decline was 17.1% (or 14.7% in constant currency terms).

The Group’s 3Q 2017 results culminated in 9M 2017 revenue of US$281.2 million and PATMI of US$18.2 million representing a Y-o-Y decline of 5.1% and 19.0% respectively.

For 9M 2017, the Group generated free cash flow of US$18.6 million. In addition, the Group’s cash balance of US$62.7 million at 30 September 2017 is more than sufficient to support the Group’s foreseeable near term business and investment needs.

Performance review of Own Brands and Agency Brands

For 3Q and 9M 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.

In 3Q 2017, Own Brands sales, in local currency terms, were higher by close to 6.0% with growth driven mainly by higher Own Brands sales in Indonesia.

For 3Q 2017, Agency Brands achieved Y-o-Y revenue growth of 2.1% (in local currency) driven mainly by the performance of Agency Brands in Malaysia. The Group’s Agency Brands sales in Indonesia were affected by higher trade discounts implemented, while in the Philippines sales were affected by the discontinuation of an Agency Brand.

The sales performance of Own Brands and Agency Brands by markets will be discussed in greater details below.

Performance Review by Markets


In 3Q 2107, our business in Indonesia achieved Y-o-Y revenue growth of 2.9% in the Group’s USD reporting currency after having reported Y-o-Y revenue decline of 10.4% in 1H 2017 (reflecting the weaker consumer sentiment in 1H 2017 and impact of our product rationalization initiative).

The growth achieved in 3Q 2017 was driven mainly by Own Brands sales of close to 6% in local currency terms although we highlight that this level of growth is not representative of all the brands in our portfolio. Our major Core Brands (especially those in the premium segment like our flagship SilverQueen products, Selamat, Cha Cha and Ceres) achieved growth ranging from 10% to strong double digit. This can be attributed to the implementation of more dynamic promotion programmes to stimulate consumer demand and increased channel penetration in Indonesia’s constantly evolving retail landscape.

After taking into account trade returns of discontinued products and higher trade rebates and discounts which reduced reported sales, our Agency Brands in 2017 achieved a marginal increase in revenue growth.

For 9M 2017, sales generated by our business in Indonesia were lower Y-o-Y by 6.7% in the Group’s USD reporting currency as a result of the weak 1H 2017 sales which was the combined result of our product rationalization initiatives for Own Brands in order to focus on our core brands and products, and the weak retail sales environment. As mentioned previously, in the short term, there is an impact on sales and profitability as a result of the product rationalization initiative but this is a stronger base to grow from.

To position our business for long term success, we increased our spending on building 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 products (e.g. our Ceres Spread and Cha Cha novelty tubes) 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 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 continue to maintain a significant shelf space presence. 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 lower Y-o-Y by 1.6% and 1.1% in 3Q and 9M 2017 respectively in the Group’s USD reporting currency. Although, in local currency terms, 3Q and 9M 2017 revenue growth of 5.0% and 5.4% was achieved. The growth was mainly driven by higher sales in Malaysia while Philippines was negatively impacted by the discontinuation of a major Agency Brand effective June 2017. Excluding discontinued Agency Brands, Regional Markets’ 3Q and 9M 2017 sales would have been higher by 15.7% and 11.8% respectively.

Review of Profitability

On the back of revenue of US$87.9 million in 3Q 2017, the Group generated EBITDA of US$9.3 million (lower Y-o-Y by 1.0%) and PATMI of US$3.3 million in the Group’s USD reporting currency.

The Group’s Gross Profit Margin, although lower Y-o-Y, is higher compared to the previous two quarters of 2017. This significant improvement in GP margin can be attributed to:

  1. Higher sales of our premium products achieved in 3Q 2017; and
  2. Our on-going cost containment initiatives.

For Own Brands, our on-going 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 as well as increased efficiency and reduced costs in the supply chain.

For 3Q and 9M 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.

There are no further updates on these claims and the Company will keep the shareholders updated of material developments in relation to the Brazilian claims.

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 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 announced previously, the Company’s total exposure in respect of tax and labour claims in Brazil amount to BRL 87,002,187/- (equivalent to US$27.5 million based on end-June 2017 exchange rate). Please refer to Delfi Limited 2017 Annual Report Note 3(i) and Note 35(b) for further details.

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 30 September 2017. 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 September 2017, the Group continues to maintain a healthy cash balance of U$62.7 million after two dividend payments in 2017, essentially US$5.8 million in May 2017 and US$7.5 million in September 2017. During the 9M 2017 period, the Group made further investments in Delfi-Orion and Delfi Yuraku of US$0.9 million and US$3.0 million respectively. These investments were funded by the net proceeds of US$8.2 million received from the disposal of CMI. The cash balance will be sufficient to support our foreseeable near term business and investment needs together with any contingent liabilities.

The Company’s shareholders’ equity was higher by US$5.2 million for 9M 2017 on Net Profit of US$18.2 million after the dividend payments as described above. For 9M 2017, the Group generated an operating cash flow of US$25.7 million which was utilized to fund its capital expenditure of US$9.3 million. The positive free cash flow of US$18.6 million was used to further reduce its borrowings by US$10.6 million, which resulted in an improvement in current ratio.

Compared to end 2016, total assets decreased by US$0.5 million with a lower cash balance which offset a higher working capital of US$2.8 million for the period under review.


Despite the highly competitive environment, 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. As we focus on growing sales of our continuing Own Brands products to replace sales lost due to the product portfolio rationalization, we are expecting 2H 2017 sales to be in line with that of 1H 2017. Although full year sales for FY2017 is expected to be lower Y-o-Y given the weak 1H 2017 sales performance.

The expected lower 2017 sales, combined with our higher spending (a) to grow our distribution capabilities and (b) on our core brands, will result in our FY2017 results being lower than FY2016. Despite the lower profitability, we will further strengthen the Group’s cash flow generation through tighter working capital management and focused capital expenditure.

More significantly, we believe the re-organization of our product portfolio, organization structure and routes-to-market together with our geographic and product portfolio positions us well for the future. To sustain profitable growth over the longer term, we are continuously adapting our business structure and our organization to changes in the market. In order to achieve this, we will continue 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 the 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. Continue the strategic re-organization of our distribution structure, sales operations, and supply chain management so we can 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.

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. 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.