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Edited Transcript of E5H.SI earnings conference call or presentation 15-Aug-19 1:00am GMT

Half Year 2019 Golden Agri-Resources Ltd Earnings Media Call

Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Golden Agri-Resources Ltd earnings conference call or presentation Thursday, August 15, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anita Neville

Golden Agri-Resources Ltd - VP of Corporate Communications & Sustainability Relations

* Richard Fung

Golden Agri-Resources Ltd - Director of IR

* Shu Ling Lim

Golden Agri-Resources Ltd - Head of Sustainability Communications

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Presentation

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Richard Fung, Golden Agri-Resources Ltd - Director of IR [1]

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It's the executive summary. And as you can see, the results were lower for the second quarter and the first half compared to the same period last year. And that is driven by 2 critical factors for the industry. One is the CPO price, which came down by 22%; and the other is the production output, which came down by 2% compared to first half last year and by 6% compared to second quarter in 2018 for the second quarter.

Nonetheless, we do see that Golden Agri proved its resilience because despite the lower CPO price, we still maintained an EBITDA of $77 million for a total of $198 million for the first half of this year. And while the upstream was impacted by the weak CPO price, as I mentioned, we saw an increase -- increased contribution from our downstream and thereby offsetting some of the weakness in the upstream. So therefore, we believe we need to continue to focus on the integrated business model to enhance our competitiveness in the industry but also to be less sensitive to CPO price volatility.

In terms of industry outlook, on the supply side, we do see a slowdown for the palm oil given the rising age profile in Indonesia and Malaysia. At the same time, because of the low CPO price, we believe the small holders have reduced fertilizer application to save costs, which will result in lower production for the rest of the year and next year.

On the demand side, we see a positive outlook. A major driver for demand is the full realization of the B20 mandatory biodiesel program in Indonesia, which we believe will move to B30 in the foreseeable future.

So let me come to the financial performance on next slide. And here, you can see the revenue impacted as well as the earnings by the lower CPO prices. But nonetheless, we do see some mitigation through the downstream, as I'll discuss in more detail in a moment.

Next slide is the financial position. And here, we see that the total debt levels have remained constant, although net debt increased somewhat because of the lower cash position.

The ratios are still very manageable. Key ratios, net debt-to-equity at 0.49 and net debt-to-EBITDA at 3.75.

So now we come to the segmental results and we start with the upstream. And here, you can see the impact of the lower CPO price as well as the lower production. So as you may recall in 2017 and '18, we had a bumper crop with about an average of 10% growth per year, and that was resulting from the recovery of the El Niño that we had in 2015. So after 2 years of this very strong growth, we believe the trees' biological cycle is now in a resting phase, and that is why we see a somewhat lower production for this year compared to last year.

Next slide is about our plantation area, and the mature area has grown to 473,000 hectares. And planted area remains fairly constant at close to 500,000 hectares.

Age profile, you can see in the pie chart, 15% of our trees are considered old, older than 25 years, and we have a replanting program to replant these trees with new high-yielding trees, which will increase our production over time. And we managed to replant 3,300 hectares for the first half of this year compared to 1,800 for the first half of last year.

The following slide is of our palm, laurics and others segment, our downstream. And despite the low CPO prices or the -- more importantly, the decline in trend of CPO prices, we still saw a margin expansion -- EBITDA margin expansion by 2.1% year-on-year. A contributor is the Indonesia biodiesel, which is on track to reach B20 for the full year. And we are looking towards the implementation of B30 that will further enhance the production -- the demand from Indonesia. And I'll discuss it in a bit more detail further down.

But first, we talk about our growth strategy and outlook. And as I mentioned, we continue to focus on our integrated business model. That means that we are growing both the upstream and the downstream. The upstream, the focus is on the replanting, as I mentioned. The downstream, we continue to expand our product portfolio and try to enhance the relationship with our users to -- with our customers to achieve higher margins. At the same time, we are looking at strategic options for some parts of our business, which are considered noncore.

Then a few words on the outlook, we remain confident about the long-term fundamentals of the palm oil price. We've been guiding at a price below USD 500. As we've seen, it's not sustainable for the long term and recently, we've seen an uptick and we're back close to USD 550 per tonne right now.

And yes, an important factor in that is the biodiesel, which is discussed on the next slide. And here, we first discuss the overall growth in biodiesel, which is globally, which is significant and expected to grow by another 9% this year.

And we also see here that -- the very strong growth in Indonesia production. From 3.4 million kiloliters in 2018, we expect to reach around 8 million kiloliters in 2019. And of that, about 7 million is expected to be consumed domestically, mostly for the biodiesel program.

So we expect Indonesia to move to the B30 program towards the end of this year, which will further increase the demand potentially by 3 million kiloliters by next year.

Okay. The next slide is about our sustainability progress, and this will be presented by Anita.

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Anita Neville, Golden Agri-Resources Ltd - VP of Corporate Communications & Sustainability Relations [2]

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Thanks, Richard, and good morning. So we're continuing our progress in relation to traceability to plantation. As you know, we see this as a fundamental measure to help transform our entire supply chain. We achieved full TTP or traceability to plantation for over 60% of our palm supply chain. To date, 58 of our third-party mills have reported full traceability to plantation and more than 180 are taking part in this exercise with us.

We're also pleased that we were able to maintain our position in the FTSE4Good Index for the second year following its latest annual assessment. The index was designed to measure the performance of companies demonstrating strong ESG practices.

And finally, we focused a lot on environmental measures that are really looking at forest conservation. We're now also looking at how environmental and social measures go hand in hand through the implementation of the safe water garden project. This is looking at how we can implement systems to treat and manage household wastewater in local communities by processing this wastewater as a fertilizer through gardens. The benefits that we anticipate are improved sanitation, health and quality of life; savings through reduced medical bills as a result of easily transmitted diseases linked to poor sanitation and water provision; and income generation for local communities from the cash crops they're able to grow in these gardens.

We've currently installed these safe water gardens in 10 communities, with a further 10 planned in Sumatra for the rest of the year.

And that is our sustainability update.

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Shu Ling Lim, Golden Agri-Resources Ltd - Head of Sustainability Communications [3]

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Okay. Thank you.