Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the 4th Quarter and Full Year Ended 31 December 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)


Over the last three years, significant changes have occurred, predominantly in our core market of Indonesia, which are principally:

  • The change in Indonesia’s retail landscape with the Modern Trade channel having grown significantly, especially in the Minimart and Convenience Store formats. Their rapid growth, whilst benefitting the retail sector and consumers overall through the proliferation of outlets, requires a different supply model as well as a different approach in managing commercial relationships with them; and
  • Increased competition, especially from foreign competitors, with noticeably higher investments in order to gain share.

In response to these evolutionary changes, we have implemented a number of strategic initiatives to adapt to this changed environment and in order to position the Group for future growth.

Our success is deeply rooted in the understanding that our organization must always be ready to adapt to the fast-moving changes in our businesses’ macro and operating environments. Against the backdrop of this changed operating landscape, the Board and key members of senior management undertook a comprehensive review of the Group’s operations and the drivers of our business.

On the back of this review, strategic initiatives were formulated with the objective of implementing changes that reorient our business and change the way we operate in Indonesia. The key changes included the following:

  1. Strengthening of our management team and organization to ensure success in the implementation of our growth strategies. The changes we made included new senior management appointments in our business in Indonesia as well as a reorganization within the current organization;
  2. A review of our portfolio of Own Brands products which effectively resulted in the rationalization of underperforming products from our portfolio. In all, we reduced our portfolio by almost one-third with the SKU’s cut comprising mainly flavour variants that underperformed in terms of a higher benchmark for sales velocity and/or margin performance. We have dynamic brands and following this rationalization, we are now able to concentrate our focus, efforts and our brand investments on the stronger performing core brands/products; and
  3. Changes to our routes-to-market strategy which included the development of specialist teams to better manage our relationships with the different groups of customers, and the re-organization of our supply chain approach in order to: (i) increase the speed to market for our products (e.g. direct deliveries to the minimarkets); (ii) maintain a high level of product availability; and (iii) to ensure that our products continue to maintain significant shelf space presence.

Given the scale of our operations in Indonesia, management had to balance between effecting these wide reaching changes successfully across our business while limiting the inevitable short term impact on sales and profitability. However we believe, once completed, these changes will provide a stronger base from which the Group can grow.

Review of the Group’s 4Q and FY2017 Financial Performance

For 4Q 2017, the Group achieved revenue of US$99.7 million which culminated in FY2017 revenue of US$380.9 million; and generated PATMI of US$3.9 million and US$22.1 million for 4Q and FY2017 respectively. For FY2017, Group revenue was lower by 5.3% Y-o-Y in the Group’s USD reporting currency mainly as a result of the product rationalization programme.

Our product rationalization programme, which started end-2015/early-2016, and was progressively implemented through our portfolio is now substantially completed. Product rationalization is an on-going initiative we undertake to eliminate lower contributing or non performing SKUs in order to focus on our core brands and products and drive forward highermargin products. The initiative had affected a significant portion of our portfolio both in Indonesia and the Philippines. In total, more than 40% of the total portfolio had been affected.

For the Regional Markets, the 4Q 2017 revenue growth was driven mainly by higher Own Brands sales overall and higher Agency Brands sales in Malaysia. For FY2017, revenue for Regional Markets were lower by 0.6% Y-o-Y in the Group’s USD reporting currency (although higher by 4.5% in local currency terms).

The Group in 4Q 2017 achieved a Gross Profit Margin (GPM) of 35.6% and although lower compared to 4Q 2016’s exceptionally high GPM of 38.4%, the Group’s GPM has shown sequential improvement in 2017. The sequential improvement can be attributed to higher sales of our higher-margin premium products, especially in Indonesia and our on-going cost containment initiatives. For FY2017, the Group’s GPM was 34.1% compared to 34.8% in 2016.

For FY2017, the Group generated Free Cash Flow of US$14.5 million on the Group’s profitability and lower capital expenditure. In addition, the Group’s cash balance of US$67.4 million at 31 December 2017 is more than adequate to support the Group’s foreseeable near term business and investment needs.

Performance review of Own Brands and Agency Brands

Own Brands sales continued to be the major contributor to the Group’s business, forming more than 60% of the Group’s revenue.

For 4Q and FY2017, our total Own Brands sales were lower Y-o-Y mainly as a result of the product rationalization exercise described earlier and a Government imposed transportation disruption which affected our business in Indonesia in 4Q 2017. The transportation disruption in December 2017 delayed delivery of products to our retail customers and resulted in the deferment of some deliveries to January 2018.

For 4Q and FY2017, the weak Agency Brands performance (lower Y-o-Y by 1.2% in 4Q and 2.1% for FY2017) can be attributed to lower sales in the Philippines (reflecting the discontinuation of two Agency Brands) and Indonesia (affected by higher trade discounts implemented), although Malaysia achieved strong performance. The performance in Malaysia was driven by higher sales in confectionery and healthcare categories while in the Philippines, the remaining Agency Brands achieved double digit growth (in local currency).

Performance Review by Markets


In 4Q 2017, our business in Indonesia achieved revenue of US$70.2 million (lower Y-o-Y by 8.1%) which culminated in FY2017 revenue of US$270.4 million.

For 4Q 2017, the weaker performance can be attributed to the transportation disruption, as described above, and also due to lower sales of value formats. If not for the transportation disruption, we believe Own Brands sales in Indonesia would have been higher, driven mainly by our Core Brands (like SilverQueen, Delfi, Ceres and Selamat).

This reflected the benefits of our re-organization and restructuring initiatives as well as the implementation of more dynamic promotion programmes to drive sales of our Core Brands. From a market share perspective, our brands in the Modern Trade format gained over two percentage points in 2H 2017, compared to the same period a year ago.

To position our business for long term success, we refocused 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 that will address different consumer needs at different price points (e.g. our Ceres Spread, Zap, Buzza and Cha Cha novelty tubes). We have also refreshed our brand communication programs to strengthen our brands’ connection with our consumers.

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.

The Regional Markets

For our Regional Markets, revenues for 4Q 2017 were higher by 1.1% 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 World Class Chocolate” campaign. Agency Brands sales in the Philippines were negatively impacted by the discontinuation of two major Agency Brands effective June 2017. Excluding discontinued SKUs/Agencies, Regional Markets’ 4Q and FY2017 sales would have been higher by 8.2% and 10.8% respectively.

Review of Profitability

On the back of the revenue of US$99.7 million in 4Q 2017, the Group generated EBITDA of US$11.6 million (lower by 6.9% Y-o-Y) and PATMI of US$3.9 million (compared to US$3.7 million in 4Q 2016) in the Group’s USD reporting currency. These culminated in FY2017 revenue of US$380.9 million, EBITDA of US$44.8 million (lower by 11.5% Y-o-Y) and PATMI of US$22.1 million (compared to US$26.2 million for FY2016).

The Group’s 4Q 2017 Gross Profit Margin, although lower Y-o-Y, is higher compared to the previous three quarters of 2017. This improvement in GP margin can be attributed to:

  1. The higher sales of our premium products achieved in 4Q 2017; and
  2. Our on-going cost containment initiatives.

For 4Q and FY2017, 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 route-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.

The Group achieved a 4Q 2017 EBITDA margin of 11.7% (lower Y-o-Y by 0.2% point) and for FY2017, is lower Y-o-Y by 0.8% point to 11.8%.

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$2.0 million pertaining to the claims. In 2017, the Company has not been notified of any further claims. At 31 December 2017 the Company’s total exposure in respect of tax and labour claims in Brazil has reduced to BRL 83,496,240 primarily due to indexation. In US$ terms, this amounted to US$25,207,934 (translated at end December17 exchange rate) which is US$1,520,850 less than the amount reported at 31 December 2016.

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 31 December 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

At end December 2017, the Group continues to maintain a healthy cash balance of U$67.4 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 year under review, 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 Group’s shareholders’ equity was higher by US$8.3 million for FY2017 on Net Profit of US$22.1 million after the dividend payments as described above. For FY2017 the Group generated an operating cash flow before working capital changes of US$44.5 million which was used mainly to fund an increase in inventories of US$10.4 million and capital expenditure of US$11.8 million. For 2018, the Group will remain vigilant in its capital expenditure.

The positive free cash flow of US$14.5 million was used to further reduce its borrowings by US$1.6 million.

Compared to end 2017, total assets increased by US$8.8 million for the year under review mainly on inventories of US$10.4 million.


The strategic reorganization of our organization structure, product portfolio, and routes-to-market together with our well-established geographic and product portfolio positions us well for the future. Our product rationalization programme is now largely complete, while other initiatives are being progressively implemented with completion expected in 2018.

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 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 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, 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 meet our investment criteria.