Delfi Limited

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Unaudited Financial Statements and Dividend Announcement For the 4th Quarter and Full Year Ended 31 December 2016

Financials Archive

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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 4Q and FY2016 Financial Performance

The Group’s 4Q 2016 revenue of US$105.6 million culminated in FY2016 revenue of US$402.1 million which generated PATMI of US$5.7 million and US$28.2 million for 4Q and FY2016 respectively. Including the 2016 Exceptional Items, PATMI was US$3.7 million and US$26.2 million. The loss for the Group in FY2015 was due to the one-time exceptional charge of US$19.4 million resulting from the settlement of the dispute with Barry Callebaut in August 2015.

The Group’s revenue growth achieved in 4Q and FY2016 can be attributed mainly to our business in Indonesia (driven by Own Brands sales) which achieved Y-o-Y sales growth of 4.5% and 2.1% respectively on the back of increased consumer spending. This growth was achieved despite the increasingly challenging environment in Indonesia amidst macroeconomic uncertainties i.e. slowing economic growth and currency volatility. Although these uncertainties continue to weigh on consumer sentiment, we believe there is an improvement compared to 2015.

For the Regional Markets, the apparent weaker Y-o-Y sales performance can be attributed mainly to the cessation of our Singapore distribution business on 31 August 2015.

In order to better illustrate the Group’s fundamental underlying revenue performance for the periods under review, if the results were adjusted (i) for the translational impact by using 4Q and FY2015’s exchange rates; and (ii) cessation of the Singapore distribution business, our underlying 4Q and FY2016 revenue performance would have been as follows:

  1. The Group’s overall revenue growth would have been 6.9% (instead of the reported growth of 5.6%) for 4Q 2016 and 5.5% (instead of the reported decline of 0.9%) for FY2016; and
  2. For the business in Regional Markets, revenue would have increased 17.5% (instead of the reported increase of 8.6%) for 4Q 2016 and 6.6% (instead of the reported decline of 8.0%) for FY2016.

More significantly, the Group’s 4Q and FY2016 Y-o-Y PATMI growth was mainly driven by the higher margins achieved (at the Gross Profit and EBITDA level), as illustrated in Figure 1 above.

The Gross Profit Margin of 38.4% achieved in 4Q 2016 is a record for the Group which culminated to Gross Profit Margin of 34.8% for FY2016. The improvement can be attributed to (i) higher sales of premium Own Brands products achieved; (ii) the benefit of price increases and product resizing implemented in 3Q 2015 and 2Q 2016 for selected products; and (iii) through our on-going cost-containment initiatives.

For FY2016, the Group generated strong Free Cash Flow of US$37.7 million through the higher profitability achieved, tighter working capital management and lower capital expenditure. In addition, the Group’s cash balance of US$67.7 million at 31 December 2016 is adequate to support the Group’s foreseeable near term business and investment needs.

Performance review of Own Brands and Agency Brands

For 4Q and FY2016, Own Brands sales continued to be the major contributor to the Group’s business, forming more than 60% of the Group’s revenue. Our total Own Brands sales achieved Y-o-Y growth of 9.1% and 3.6% in 4Q and FY2016 with Own Brands sales in Indonesia the main growth driver.

The Own Brands growth achieved was driven primarily by higher sales of premium products (especially under our core brands of “Silver Queen” and “Selamat”) as we focused on driving growth of our core brands.

For Agency Brands, sales in local currency terms were lower by 5.0% and 5.6% for 4Q 2016 and FY2016 as a result of (i) the cessation of the Group’s distribution business in Singapore on 31 August 2015, and (ii) lower Agency Brands sales achieved in Indonesia. Excluding the cessation of the Singapore distribution business, the Group’s Agency Brands sales were lower Y-o-Y 0.5% for 4Q 2016 although higher by 0.6% for FY2016.

The lower Agency Brands sales in Indonesia can be attributed to the increase in customs duties for imported products from non-ASEAN countries in 2015, and changes in regulatory standards (e.g. more stringent labeling and food law regulations), which disrupted sales in FY2016. Throughout 2016, our team has been working together with our Agency Brands principals to progressively resolve these issues. In addition, 4Q 2016 Agency Brands sales in Indonesia were affected by higher trade discounts implemented.

Performance Review by Markets


The 4Q and FY2016 sales generated by our business in Indonesia was higher Y-o-Y by 4.5% and 2.1% respectively in the Group’s USD reporting currency, despite the challenging environment and intensifying competition in Indonesia.

The growth achieved in FY2016 can be attributed mainly to higher sales of premium Own Brands products as a result of: (i) our trade customers undertaking a programme to replenish their supply chain at the beginning of the year; and (ii) increased consumer spending experienced through the year.

To position our business for long term success, we increased our spending to build our core brands and focused on where we believe the strongest growth opportunities are. To cater to the different consumer groups, we have chocolate confectionery products that spans across multiple price points and across many product categories.

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.

The Regional Markets

For our Regional Markets, revenues were higher Y-o-Y by 8.6% in 4Q 2016 and lower 8.0% for FY2016 in the Group’s USD reporting currency. However, in local currency terms and excluding the cessation of the Singapore distribution business, 4Q and FY2016 revenue growth of 17.5% and 6.6% was achieved.

Review of Profitability

On the back of the revenue of US$105.6 million in 4Q 2016, the Group generated EBITDA of US$12.5 million (higher Y-o-Y by 128.6%) and PATMI of US$3.7 million (compared to US$0.8 million in 4Q 2015) in the Group’s USD reporting currency. These culminated in FY2016 revenue of US$402.1 million, EBITDA of US$50.6 million (higher Y-o-Y by 35.0%) and PATMI of US$26.2 million (compared to the loss of US$4.7 million for FY2015).

The strong profit growth for 4Q and FY2016 can be attributed to the higher sales and margins achieved. At the Gross Profit level, 4Q margin of 38.4% (higher 7.6% points Y-o-Y) and FY2016 margin of 34.8% (higher 5.0% points Y-o-Y) achieved can be attributed to:

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

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 4Q and FY2016, 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.

Despite the higher selling and distribution costs, the Group achieved a 4Q and FY2016 EBITDA margin of 11.9% (higher Y-o-Y by 6.4% points) and 12.6% (higher Y-o-Y by 3.4% points) respectively.

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$13,441,740/-). 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$26,728,784/-).

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

In FY2016, the Company returned a total of US$68.3 million to its shareholders in a Capital Reduction scheme and an interim dividend for 1H 2016 . After the cash distributions, the Company’s cash balance of US$67.7 million as of balance date will be sufficient to support its foreseeable near term business and investment needs together with any contingent liabilities.

At 31 December 2016 the Company’s shareholders’ equity and total assets reduced by US$40.9 million and US$45.3 million respectively compared to 31 December 2015 as a result of the completion of the Capital Reduction exercise. The Group reduced its capital expenditure in light of the uncertain economic conditions, focusing on the most critical and immediately income-generating projects.

For FY2016, the Group generated an operating cash flow of US$59.7 million. The positive operating cash flow enabled the Group to generate a free cash flow of US$37.7 million and reduce its borrowings by US$20.9 million.

Compared to the balances at end-2015, trade receivables edged up by US$5.5 million on seasonal sales. The higher debtors balance was partially offset by lower inventories of US$4.9 million. With a tighter working capital management, the Group improved its cash conversion cycle1 by 19 days


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 deliver sustainable growth 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 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 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 financial performance in FY2017 to be better than 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, 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.

1 Cash conversion cycle is calculated by adding the inventory days to receivable days and subtracting the payable days.