Published February 28, 2009

Writedowns hit palm oil businesses in Q4

By OH BOON PING

	Email this article
	Print article
	Feedback

PALM oil businesses took a big hit from writedowns in the fourth quarter of last year, but most remain positive about their long-term prospects.

Yesterday, Indofood Agri Resources reported a net loss of 757.6 billion rupiah (S$96.5 million) for the three months ended Dec 31, 2008, while Golden Agri-Resources (GAR) reported a 76.8 per cent plunge in Q4 net profit to US$133.28 million.

Bucking the trend was First Resources which reported a 47.5 per cent jump in Q4 net income to 177 billion rupiah.

Both Indofood and GAR were hit by non-cash writedowns on biological assets in that quarter.

In Indofood's case, the group took a 663 billion rupiah valuation loss, while GAR saw its net gain from fair value changes in biological assets plunge 80.1 per cent to US$151.19 million.

The exception is First Resources which booked a gain of 78.7 billion rupiah fair value gain - against a loss of 48.08 billion rupiah a year ago.

Indofood said it assesses the value of its biological assets on a half-yearly basis, based on the discounted net future cash flows of the underlying plantations.

'The changes in fair values of biological assets are driven mainly by the gradual decline in the fair values of biological assets over the years due to the realisation of the projected cash flows; and changes in assumptions used in the independent valuations particularly in projected CPO selling prices and discount rate,' it said in a statement.

In terms of top line, GAR's Q4 turnover shed 10.2 per cent to US$591.06 million, while First Resources posted a 36 per cent rise in turnover to 692.57 billion rupiah. Indofood's revenue went up slightly to 2.49 trillion rupiah.

On a full-year basis, Indofood reported an 82 per cent rise in turnover to 11.84 trillion rupiah thanks to higher palm oil prices and increased palm oil sales volume.

The sales volume of crude palm oil (CPO) in 2008 was 730,000 tonnes, as compared with 361,000 tonnes in the previous year - mainly due to contribution from subsidiary Lonsum and organic growth.

GAR's Indonesia business similarly benefited from the higher CPO price and grew its full-year revenue from that market by 66.9 per cent to US$2.33 billion in 2008.

Last year, the international CPO (CIF Rotterdam) price rose to a historical high of US$1,400 per tonne in March 2008 before closing at US$528 per tonne at the end of December 2008.

The average CPO (CIF Rotterdam) price for the year was US$947 per tonne, an increase of about 22 per cent from the average of US$775 per tonne in 2007.

Looking ahead, GAR said that demand for palm oil, being the cheapest edible oil in the world, is supported by continued core demand from the edible oil and oleo chemical markets and potential demand from the renewable energy sector.

'Moving forward, we will continue to strive to manage our operating costs at optimal levels and increase production through further improving operational efficiency and plantation management techniques,' the group said in its stock exchange filing.

The operating environment of the China agri-business remains challenging in view of the volatility of commodity prices, including soya-bean prices. 'We will strive to manage our costs as well as focus our growth on the sale of various palm-based products to selected key regions within China,' it added.

Indofood CEO Mark Wakeford said that 'the strength of our integrated business model, and the growth of our plantation business together with our low cost of production, positions us well to face the challenges ahead'.

He added that some 39 per cent of its planted oil palm area is under seven years of age, and the group has a strong growth profile ahead.

First Resources said that it will continue with its strong focus of increasing productivity and keeping costs low.