Increasing Our Diversity Enhancing Our Growth
INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 At a Glance Indofood Agri Resources Ltd (“IndoAgri”) is a vertically integrated agribusiness group with activities spanning the entire supply chain from research and development, seed breeding, oil palm cultivation and milling; as well as the production and marketing of cooking oil, shortening and margarine. Headquartered in Jakarta, we are among the largest palm oil producers in Indonesia. Our branded cooking oil, shortening and margarine products together garner a leading share in the domestic market. As a diversified agribusiness group, IndoAgri also engages in the cultivation of sugar cane, rubber and other crops.
Leading market One of the largest Diversification of position in Indonesia plantation owners sugar with strategic with renowned in Indonesia fit advantage brands of cooking oil and margarine
CONTENTS
02 Milestones 30 Manufacturing Process for Edible Oils & Fats 04 Key Events in 2010 31 Environment & CSR 05 Corporate Structure 36 Board of Directors 06 Location Map 40 Corporate Information 10 Chairman’s Statement 41 Corporate Governance 11 CEO’s Statement 50 Financial Statements 14 Business Overview 133 Interested Person Transactions 16 Financial Highlights 134 Estates Location 17 Operational Highlights 136 Statistics of Shareholdings 20 Operations Review 138 Notice of Annual General Meeting INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 1
Vision To become a leading integrated agribusiness, and one of the world-class agricultural research and seed breeding companies.
Mission Values
1. To be a low-cost producer, through high yields 1. CONSISTENT and cost-effective and efficient operations 2. Our Success Rests On Satisfying CUSTOMERS’ Needs 2. To continuously improve our people, processes and technology 3. INNOVATION Is Our Key To Future Growth
3. Exceed our customers’ expectations, whilst 4. Reliable STAFF Is Our Biggest Asset ensuring the highest standards of quality 5. EXCELLENCE Is Our Way Of Life 4. Recognise our role as responsible and engaged 6. TEAMWORK Makes A Winning Team corporate citizens in all our business operations, including sustainable environmental and social practices
5. To continuously increase stakeholders’ value 2 Increasing Our Diversity, Enhancing Our Growth
2007 milestones
Throughout its journey of growth and Completed a reverse takeover of CityAxis expansion, IndoAgri achieved respectable Holdings Limited and changed name to growth in its planted area and production Indofood Agri Resources Ltd. volume. The group also diversified into
Listed on the main board of the SGX-ST sugar cultivation and production. on 14 February and raised S$420 million proceeds from placement of 338 million new shares.
Acquired plantation land bank of 98,491 hectares in South Sumatra and Kalimantan.
Acquired a 58.8% effective interest in Lonsum, becoming one of the largest plantation companies in Indonesia with land bank doubling to over 400,000 hectares.
Diversified into sugar business via the subscription of 60%-stake in PT Laju Perdana Indah.
Entered into a joint venture with Ghanian Council for Scientific and Industrial Research to develop and realize the genetic potential of oil palm for commercial production.
Achieved the world’s first patent to produce F1 oil palm hybrid seeds.
Acquired plantation land bank of 82,300 hectares in South Sumatra and Central Kalimantan, Indonesia.
Acquired a bulking facility at the Dumai port, Indonesia.
2008 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 3
2009
Acquired plantation land bank of 10,000 hectares in South Sumatra, Indonesia.
Incorporated a new subsidiary to own barges, tugboats and operation of shipping logistics business. Carried out an internal restructuring to Achieved the Roundtable on Sustainable consolidate all joint ventures with the Palm Oil certification for its North Salim Group (a controlling shareholder of Sumatra estates and factories. IndoAgri) under a Singapore incorporated entity, IGER. Raised Rp730 billion or approximately US$78 million from 5-year Indonesian Sold 9 million treasury shares through Rupiah Bonds and Islamic open market for S$25 million. Lease-based Bonds. IndoAgri divested 8% or 109,521,000 shares in Lonsum for a cash consideration of Rp1.3 trillion. Of which, 3.1% was sold to PT SIMP and 4.9% was sold to the public.
2010 4 Increasing Our Diversity, Enhancing Our Growth
Key Events in 2010
15 May
IndoAgri sold 9 million treasury PT SIMP entered into an agreement shares through open market for with certain members of the Salim approximately S$25 million. Group so as to consolidate all its joint ventures with the Salim Group under a single investment holding company, 11 IndoInternational Green Energy Resources NOV Pte. Ltd. (“IGER”). Following this internal restructuring, the effective shareholding interests of PT SIMP and the Salim Group in the joint ventures remain the same.
Following this, IGER is positioned to be an agribusiness group with oil palm plantations and sugar business to explore potential business opportunities that may 08 arise in the future, if any. DEC
IndoAgri divested 8% or 109,521,000 shares in Lonsum for a cash consideration of Rp1.3 trillion. Of which, 3.1% was sold to PT SIMP (a 90% owned subsidiary of IndoAgri) and 4.9% was sold via a private placement to certain external investors.
Following IndoAgri’s sale to the external investors, the Group’s shareholding interest in Lonsum has reduced from approximately 64.4% to 59.5%. This has resulted in an increase in Lonsum’s public float from approximately 35.6% to 40.5%. The increase in liquidity of the Lonsum shares on the Indonesian Stock Exchange will enable Lonsum to enjoy a lower corporate tax rate of 20% instead of the standard rate of 25% based on the prevailing tax regulation in Indonesia. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 5
Corporate Structure
83.84%
Indofood Singapore PUBLIC Holdings Pte. Ltd.
68.95% 31.05%
100.00%
Indofood Oil & Fats Pte. Ltd.
8.38% 90.00%
PT Salim Ivomas Pratama
59.48% 6 Increasing Our Diversity, Enhancing Our Growth
Location Map
MALAYSIA Medan
SINGAPORE
SUMATRA
Pekanbaru Pontianak
Palembang
LEGEND
Oil Palm Refinery Jakarta Sugar Cane Sugar Mill
Rubber Copra Mill JAVA Cocoa Town / City
Tea INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 7
Tobelo Bitung NORTH Muotong MALUKU
KALIMANTAN
Samarinda
SULAWESI
Makassar
Surabaya
OUR PLANTATIONS AND REFINERIES IndoAgri owns strategically located plantations and production facilities across the Indonesia archipelago. Our land bank is largely located in Sumatra and Kalimantan, of which over 240,000 hectares are planted. Oil palm is our dominant crop, followed by rubber, sugar cane, cocoa and tea. On the downstream, our refineries are strategically located at major cities in Jakarta, Surabaya, Medan and Bitung.
Our Strategy 10 Increasing Our Diversity, Enhancing Our Growth chairman’s statement
Meeting the challenge Our resolve to expand capacities, pursue strategic opportunities and improve plantation yields were strengthened by some major themes dominating the commodities market in 2010:
• Global CPO shortage, aggravated by adverse weather and consequently slower new plantings, is likely to keep short- term palm oil prices supported. • Global demand of palm oil is expected to be well supported with consumption growth accounting for 7.8% vs production growth at 7.6% over the past 10 years. • The increasing appetite for agricultural commodities in emerging Asian markets, such as India and China, is expected to continue. Strengthening our fundamentals Our unwavering business fundamentals were a major source of strength in weathering the challenges of the economic recession. Strong corporate governance, efficiency and productivity are some of the hallmarks of our business practices. The maintenance of low-cost production buttressed by higher yielding crops, better resource utilisation and smarter work processes provided a firm platform for our growth and success. The sugar business made Dear Shareholders, headway in the third year of operations with new plantings and the first full year of operations for our Java factory. This segment On behalf of the Board, I am pleased to present IndoAgri’s will continue to contribute to our future growth. Annual Report for the year ended 31st December 2010. As an integrated agribusiness group, our future lies in R&D and Amidst global uncertainties particularly in Europe and America, an absolute commitment to sustainable farming practices. The IndoAgri has risen to the challenges of 2010. At the heart of cultivation of high-yielding seed varieties and production of this fundamental resilience is our sound business strategy and approximately 170,000 tonnes of sustainable palm oil certified to the principles of the Roundtable of Sustainable Palm Oil sustainable practices. We were boosted by continued strong (RSPO) are testimonies to these efforts. We believe that these economic growth among emerging economies in Asia. The accomplishments are interlinked, as better crop yields will allow performance of China, India and Indonesia were outstanding. us to fulfill growing demand with less acreage. We are focused Indonesia, our major market and where our plantations are on increasing our sustainable palm oil production in the near located, registered a robust GDP growth of 6.1% in 2010. future as the second phase of RSPO audits take place at our Sumatra estates in 2011. As the world’s largest producer of palm oil, Indonesia is well positioned for continued economic growth. Rising confidence Engaging our communities has been backed by political and macro-economic stability. Corporate Social Responsibility remains a top priority for the Domestic consumption is driven by population growth and Group. Through ongoing community services and agricultural expanding income expenditure, particularly among middle- extension programmes, we continue to help our neighbouring income households. Indonesia has a population of 233 million, farmers and smallholders prosper and achieve their fullest with approximately 50% aged 25 years old or below. Demand potential across the Indonesian archipelago. for our downstream products such as cooking oil and margarine has been supported by a flourishing food and beverage industry. While the future is challenging, our opportunities are greater The outlook is bright. than ever. With a strong pipeline for organic expansion, IndoAgri is well positioned as a leading integrated agribusiness with products that will enrich people’s lives. Your continued support has given us, and will give us the wind beneath our wings.
Mr Edward Lee CHAIRMAN INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 11
CEO’S statement
A leading integrated Agribusiness group with strong R&D and seed breeding operations
Anticipating market opportunities Dear Shareholders, Indonesia’s status as the world’s largest palm oil producer is further supported by strong domestic consumption due to rising incomes, growing affluence and changing dietary patterns. The market for commodities has been fairly resilient despite Buttressed by similar socio-economic trends in major markets one of the toughest recessions since the Great Depression. around the world, CPO prices (CIF Rotterdam) rallied strongly Rising population and income growth, particularly in developing from US$683 per tonne in 2009 to a high of US$1,108 in Q4 countries, have fuelled demand for edible oils, putting pressure on 2010, averaging at US$901 per tonne in 2010. global supplies already tightened by adverse weather, competition for acreage and biofuel mandates. With tight global stocks and sustained volatility in prices, current prices factor in a risk premium, which we believe is supported Rising at a rate of 80 million annually, world population is expected by strong fundamentals. We will continue to expand our palm to reach 7 billion in 2011 (from 2 billion in 1930) and cross the 9 plantations given this positive long-term scenario. billion-mark by 2045. This, combined with urbanisation and rising incomes, is expected to underpin the demand growth for vegetable Meanwhile, deficits in sugar supplies caused by droughts in Brazil oils. As the most productive vegetable oil, palm oil accounts for and lower-than-expected exports from India, the world’s No. 2 45.5 million tonnes or 31% of global vegetable oil production. producer, continue to support the price of sugar. Global sugar prices rose from an average of US$486 per tonne in 2009 to In Q4 2010, the average price of CPO soared to US$1,108 per US$616 per tonne in 2010. Global stockpiles were reduced to tonne on the back of economic upswings and the rise of Asian low levels amidst concerns that India’s sugar exports may not be powerhouses like China and India. As regional growth outpaces enough to offset declining outputs in Brazil. the rest of the world, the weakened US dollar has made commodity purchases even more attractive to buyers in Asia. At the same time, spiralling demand in net-importing countries like Indonesia, where a thriving food and beverage industry is Although biodiesel usage remains discretionary and mandate- taking root, have driven the rate of sugar consumption. According driven, prices of vegetable oil and crude oil remain closely linked. to Dewan Gula Indonesia, sugar consumption increased from Speculation on demand for vegetable oils as biofuel feedstock 3.3 million tonnes in 2004 to 5.4 million tonnes in 2010, with has led to volatility in CPO prices, intensifying the annual contest domestic production lagging at 2.2 million tonnes per annum. between corn, wheat and other oilseed crops for planting acreage.
In 2010, rubber prices also staged a triumphant comeback with higher demand by recuperating automotive industries in developing countries, especially China. According to the Rubber Association of Indonesia, demand for car tyres could give a boost in rubber shipments to India. 12 Increasing Our Diversity, Enhancing Our Growth
CEO’S statement
Delivering steady results In 2011, the completion of our 8,000 TCD sugar factory in South Thanks to our fiscal strength and prudent approach, IndoAgri Sumatra is expected to add additional capacity of 1.5 million has emerged from the economic crisis with greater confidence tonnes of sugar cane per year, which will be supplied from our and resolve. Despite our challenges, we remained profitable and own plantation as we expand. vigilant in our focus. With our capacities and expertise in place, we are poised for For the year in review, the Group’s final consolidated revenue was an increase in output, and will ensure that our plantation up 5% to Rp9.5 trillion with the Plantation Division recording a operations remain focused and manageable. Together with our good year from higher average selling prices of crude palm oil, groundwork in 2010, we hope to fulfill our planting targets and palm kernel and rubber as well as higher sales volume of palm improve production outputs as we position to become a leader in seeds and contribution from sugar sales. Indonesia’s sugar industry.
Our gross profit grew 16% in FY2010 with the Plantation Additionally, our core oil palm plantations were expanded to Division offsetting lower profit contribution from Edible Oils and 205,064 hectares, of which 49,664 hectares or 24% are immature Fats Division due to stiff price competition in the market. trees that will increase our production when they reach maturity in the next 2 to 3 years. To handle the growth in FFB production, Net profit attributable to owners declined 8% to we are in the process of building two new palm oil mills. Rp1.4 trillion due to lower profit from operations as a result of substantially lower biological assets gain and lower net foreign Edible Oils and Fats exchange gains. To reinforce our domestic market leadership for branded cooking oil, margarine and shortening, we have enlarged our production Positioning for sustainable growth capacity in North Jakarta with the completion of a 420,000-tonne Driving our strong financials is the strategic focus on sustainable refinery, increasing the Group’s refining capacity to 1.4 million profits through low-cost production. Our vertically integrated tonnes of CPO each year. We expect to complete the bottling and agribusiness model gives us flexibility to harness operational margarine production lines and broaden our range of cooking oil synergies across the entire supply chain while establishing a and speciality fat products in the market in 2011. domestic platform for sourcing and working with our parent, PT ISM, to supplement our distribution capabilities. The new refinery offers storage and capabilities for the production of consumer and industrial cooking oil. We believe it That IndoAgri was able to maintain its profitability and production will create long-term business value and a much-needed capacity levels despite the challenges demonstrates the strategy in to boost our production of industrial cooking oil. Over time, action. To secure our footing in the coming years and beyond, these enhancements will strengthen our outputs of high quality we will continue to measure ourselves against international cooking oil and fortify our brand in local and export markets. benchmarks, strengthen our vertical integration and improve our competitiveness at all points of the price cycle. We will also focus Balancing business with environmental stewardship on expanding production capacities and enhancing crop yields. As a plantation business, responsible farming practices and Driving future transformation sustainable production methods are integral to our philosophy. As a Group, our achievements depend on a variety of We have not forgotten the social and environmental impact performance drivers including people, processes, operational of our operations, and are deeply committed as responsible capacities, innovation and corporate governance. corporate citizens in our community.
Plantation This year, we pursued new benchmarks to further our CSR efforts. During the year, our sugar business ramped up with the This included staff seminars on the Awareness, Interpretation operation of our 3,000 TCD sugar factory in Central Java. The and Development of Environmental Management Systems, facility has the capacity to process up to 540,000 tonnes of sugar as well as training programmes on Occupational and Safety cane per annum, buying from approximately 600 smallholders Management Systems. Respectively, these activities underscore and farmers. our compliance with ISO14001:2004 and OHSAS18001:2007 standards, reinforcing the importance of sustainable practices in the workplace. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 13
As a follow up to the RSPO-certification of our North Sumatra Our achievements are nothing without people. We value facilities, some of our Riau estates will undergo RSPO audits teamwork among employees, synergistic relationships with in 2011. An RSPO accreditation represents the highest partners and suppliers, and a work environment that allows us environmental compliance and protection standards in the global to achieve our full potential. We have the talents and resources palm oil industry. As we strive to increase sustainable palm oil to succeed in today’s dynamic operating environment, and output, we will progressively increase the number of RSPO- will continue to foster a culture where people are enabled to certified estates in the coming years. contribute their best.
Nurturing innovation In appreciation With stricter regulations on new plantings, our future depends on As always, my heartfelt appreciation goes to our Board of our ability to optimise productivity and improve crop yields. That Directors for steering the Group’s strategy and direction. I also is why we have placed premiums on research and development take this opportunity to thank our customers, suppliers and in plant breeding, agronomy, crop protection and data analytics. business partners for their steadfast support. With innovation in these areas, the Group is focusing on lower production costs, maximising long-term profits and improved Last but not least, special thanks to our family of over 31,000 environmental sustainability. employees across Indonesia. Without their loyalty and hard work, IndoAgri would not be what it is today. Through our research centres, PT SAIN and Sumatra Bioscience, we will also invest in applied research and collaborate with leading institutions to increase the yield potential of our palm seed material, as well as focus on agronomy and improved crop protection.
Advancing best practices As part of corporate governance, our Enterprise Risk Management Mr Mark Wakeford programme was implemented Group-wide this year to ensure CHIEF EXECUTIVE OFFICER that day-to-day risks are uniformly tracked and controlled. We also aligned our Internal Audit function in 2010, establishing a consistent framework for best business practices and other corporate governance measures.
To improve decision-making and business execution, the SAP enterprise resource planning system implemented at our refinery operations in 2009 was successfully piloted in our Riau plantations and will be rolled-out to our plantations starting in 2011.
To sharpen our operational competencies, we intensified the deployment of Geographic Information Systems, which map and monitor our estates through colour-coded graphical interfaces. The system will enable us to identify and respond to potential threats with greater speed and efficiency.
Looking ahead In 2011, we will continue to exploit our experience and expertise in primary production, focussing on all levels in our supply chain to remain a low-cost producer. We will also enhance our integration of upstream operations, and improve the range and quality of our downstream products. We have introduced sugar into our product range this year, and are focused on improving sales volumes in 2011 and beyond. 14 Increasing Our Diversity, Enhancing Our Growth
Business Overview
IndoAgri Group is a vertically integrated agribusiness group with business activities in research and development, seed breeding, oil palm cultivation, plantation management, milling, production, as well as marketing and distribution of branded cooking oil and margarine. Headquartered in Jakarta, the Group operates 20 palm oil mills and 5 refineries across Indonesia. As a diversified group, we are also engaged in the cultivation of sugar cane, rubber and other crops.
IndoAgri was listed on the Singapore Exchange in 2007, and is Plantation one of the largest palm oil producers in Indonesia today. Our branded cooking oil, together with shortening and margarine Oil Palm products enjoy leading shares in the Indonesian domestic oils and • Oil palm remains our dominant crop, occupying 85% or fats market. Our operations are grouped under the Plantation 205,064 hectares of total planted area. This includes 49,664 and Edible Oils & Fats Divisions. hectares of immature oil palms, ensuring growth in our FFB FINANCIAL HIGHLIGHTS production as young trees approach their productive age. For the year in review, the Group reported consolidated revenues • The Group harvested an FFB output of 2,564,206 tonnes of Rp9.5 trillion, a 5% increase against last year’s Rp9.0 trillion as in FY2010, a 2% decrease over 2,613,028 tonnes achieved a result of higher average selling prices of crude palm oil, palm last year. kernel and rubber as well as higher sales volume of palm seeds • CPO production declined 3% from 762,570 tonnes to and contribution from sugar sales. 739,885 tonnes in FY2010 as a result of lower plasma purchases and nucleus production. Full year gross profit improved 16% from Rp3.2 trillion • We expect domestic consumption for palm oil products to in FY2009 to Rp3.8 trillion in FY2010. Strong gross profit remain supported in the short to medium term by demand recorded by the Plantation Division contributed to the from the food and beverage industry and population growth. improved results. • We are in the process of building two additional palm oil The Group’s net attributable profit to owners for the year of mills in order to process the FFB outputs derived from newly Rp1.4 trillion came in 8% lower compared to the same period matured areas. last year due to lower biological assets gain, lower net foreign Sugar exchange gains and higher operating expenses. The Group recognised a biological assets gain of Rp309 billion in FY2010 • Through its estates in South Sumatra, the Group’s planted versus Rp623 billion in FY2009 due mainly to lower projected area for sugar cane increased from 8,672 hectares in FY2009 CPO prices in Rupiah terms resulting from a stronger projected to 11,302 hectares in FY2010. The expansion is a positive Rupiah against the US dollar. step towards achieving the Group’s targeted planted area. Ensuring sustainable growth • We look forward to the completion of an 8,000 TCD sugar IndoAgri remains one of Indonesia’s largest plantation owners factory in South Sumatra in 2011. This will augment our with a planted acreage of 242,107 hectares. In 2010, we planted production capacities as we consolidate our capabilities for an additional 15,041 hectares for oil palm and 2,630 hectares for full-scale operation and growth. sugar cane respectively. • From Pati, we have a 3,000 TCD sugar factory where we received 397,444 tonnes from smallholders, and together with 9,981 tonnes of imported raw sugar, we produced 35,014 tonnes of sugar (of which 15,960 tonnes represent farmers’ share). INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 15
REVENUE PROFIT FROM OPERATIONS
Rp trillion Rp trillion
14.0 3.5 3.3 11.8 3.0 12.0 3.0 9.5 10.0 9.0 2.5
8.0 1.9 6.5 2.0 1.6 6.0 1.5
4.0 1.0
2.0 0.5
0 0 07 08 09 10 07 08 09 10 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
NET PROFIT TO EQUITY HOLDERS NAV PER SHARE
Rp trillion Rp
1.8 8,000 7,605
1.6 1.5 7,000 6,567 1.4 1.4 6,000 5,506 1.2 4,943 5,000 1.0 0.9 0.8 4,000 0.8 3,000 0.6 0.4 2,000 0.2 1,000 0 0 07 08 09 10 07 08 09 10 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
Edible Oils & Fats Through its RSPO-certified estates in North Sumatra, the Group produced approximately 170,000 tonnes of sustainable palm oil • To strengthen its position in the domestic market for branded in FY2010, which meets the stringent criteria of the Roundtable cooking oil, the Group supplemented its processing capacities on Sustainable Palm Oil. and commissioned a new 420,000-tonne per year refinery in Tanjung Priok this year. To raise productivity and improve crop yields, the Group engages • With the additional capacity, the Group has a total processing in a spectrum of research and development programmes, and capacity of 1.4 million tonnes per year. leverages advance technologies to achieve its operational goals. 16 Increasing Our Diversity, Enhancing Our Growth
Financial Highlights
2007 2008 2009 2010 In billion Rupiah (unless otherwise stated) Actual Actual Actual Actual Revenue 6,506 11,840 9,040 9,484 Gross Profit 2,013 4,129 3,225 3,750 Gain/(Loss) arising from changes in fair values of biological assets 202 (947) 623 309
Operating Income 1,579 1,864 3,264 2,993 Net Profit 994 1,067 2,053 1,906 Net Profit to owners of the parent 889 795 1,527 1,402
EPS (in Rupiah) 671 550 1,061 974
Current Assets 3,880 4,294 3,837 6,118 Fixed Assets 11,454 12,529 15,183 17,244 Other Assets 3,477 4,040 4,628 4,826 Total Assets 18,812 20,863 23,648 28,189
Current Liabilities 5,924 3,826 2,926 4,126 Non-Current Liabilities 3,067 6,061 7,743 8,363 Total Liabilities 8,991 9,887 10,669 12,488 Shareholders' Equity 7,156 7,922 9,449 11,010 Total Equity 9,821 10,976 12,979 15,700 Net Working Capital (2,044) 468 912 1,992
Sales Growth 59.1% 82.0% (23.6%) 4.9% Gross Profit Margin 30.9% 34.9% 35.7% 39.5% Operating Profit Margin 24.6% 15.7% 36.1% 31.6% Net Profit Margin 15.3% 9.0% 22.7% 20.1% Net Profit to owners of the parent 13.7% 6.7% 16.9% 14.8% Return on Assets 1 8.4% 8.9% 13.8% 10.6% Return on Equity 2 12.4% 10.0% 16.2% 12.7% Current Ratio (times) 0.7 1.1 1.3 1.5 Net Debt to Equity Ratio (times) 3 0.37 0.35 0.40 0.30 Total Debt to Total Assets Ratio (times) 0.28 0.30 0.29 0.30
1 Profit from operations divided by total assets 2 Net profit to equity holders divided by shareholders' equity 3 Net debt divided by total equity INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 17
Operational Highlights
2007 2008 2009 2010 In Hectares (unless otherwise stated) Actual Actual Actual Actual Planted Area - Nucleus Oil Palm 161,457 183,113 193,613 205,064 Mature 118,030 124,169 132,560 155,400 Immature 43,427 58,944 61,053 49,664 Rubber 22,003 22,410 21,738 22,028 Mature 18,956 17,873 17,263 17,556 Immature 3,048 4,537 4,475 4,472 Sugar – 4,174 8,672 11,302 Mature – 2,567 4,024 8,785 Immature – 1,607 4,648 2,517 Others 3,522 3,631 3,698 3,713 Mature 2,800 2,870 2,971 3,198 Immature 722 761 727 515 Plasma 61,000 76,472 76,851 81,500
Age Maturity of Oil Palm Trees Immature 43,427 58,944 61,053 49,664 4 - 6 years 9,331 12,332 19,559 39,010 7 - 20 years 90,628 82,008 73,262 71,443 Above 20 years 18,070 29,829 39,739 44,947 Total 161,457 183,113 193,613 205,064
Distribution of Planted Areas-Nucleus Riau 57,003 57,003 56,782 57,025 North Sumatra 40,535 40,506 40,463 40,502 South Sumatra 43,692 61,254 71,385 77,380 West Kalimantan 18,632 21,758 21,878 24,900 East Kalimantan 19,030 24,478 28,120 32,880 Central Kalimantan – – 725 1,007 Java 2,555 2,795 2,860 2,861 Sulawesi 5,535 5,534 5,508 5,552 Total 186,982 213,328 227,721 242,107
Production Volume (‘000 Tonnes) Nuclues Fresh Fruit Bunch (FFB) 1,506 2,496 2,613 2,564 Processed Fresh Fruit Bunch 1,708 3,160 3,346 3,313 Crude Palm Oil (CPO) 384 714 763 740 Palm Kernel 85 166 181 175
Sales Volume (‘000 Tonnes) Crude Palm Oil (CPO)* 361 730 759 728 Palm Kernel 82 161 179 173 Rubber 7 26 25 22 Cooking oil, Margarine, Shortening & CNO 663 693 642 683
* Sales to external and internal RESEARCH & DEVELOPMENT
PLANTATIONS
OIL PALM SEED BREEDING
PALM OIL MILLS OUR INTEGRATED AGRIBUSINESS MODEL
FINISHED PRODUCTS
DISTRIBUTION
REFINERIES 20 Increasing Our Diversity, Enhancing Our Growth
Plantation REVIEW - Palm Oil
IndoAgri remains one of Indonesia’s largest plantation owners with planted oil palm acreage of over 205,000 hectares.
Overview The Plantation Division plays a pivotal role in managing and developing IndoAgri’s vast estates across Indonesia. Our estates are dominated by oil palm, which occupy 205,064 hectares or 85% of total planted area, followed by rubber at 9% and sugar cane at 5%. With 49,664 hectares or 24% of our planted oil palm estates demarcated by young or immature trees under the age of seven years, the Group expects to benefit from steady FFB supplies as these trees approach their productive years.
Building on a heritage that brings together 130 years of Constant emphasis on operational streamlining underscores our plantation management experience from our subsidiaries PT commitment in optimising long-term efficiency while keeping SIMP and Lonsum combined, the division deploys advanced R&D production costs low. For example, the purchase of additional programmes, including the latest breeding and oil palm cultivation trucks has provided the division with a cheaper and more reliable techniques. Continued focus on research and biotechnology alternative to third-party outsourcing. Our in-house transportation has made us among the most productive plantation companies fleet has translated into greater savings and better control over in Indonesia. logistics management. Ongoing road works at our estates in South Sumatra have improved the transportation of crops and The division has a total processing capacity of 4.5 million tonnes fertilisers during rainy seasons. At the same time, a six-year of FFB per annum spread across its 20 palm oil mills in Sumatra programme to develop permanent housing will raise productivity and Kalimantan. We also operate four crumb rubber processing levels and reduce the deployment of contract workers in South facilities, three sheet rubber processing facilities, a cocoa factory, Sumatra. We expect to do more to boost competency in the a tea factory and a sugar mill. coming years.
Our estates and processing mills in North Sumatra are certified The division systematically monitors and adjusts the nutrient and to the stringent standards set by the Roundtable of Sustainable fertiliser levels across its estates with a view towards optimising Palm Oil, producing approximately 170,000 tonnes of sustainable FFB yields. To fine-tune our administration and control, we are crude palm oil each year. extending a block management control system progressively to track our plantations in specific and smaller parcels of 25- The Group’s diversification into sugar offers both strategic fit 30 hectares. The SAP enterprise resource planning system that and the ability to cater to strong domestic demand for sugar was piloted at our refineries will be progressively rolled out to all in Indonesia. plantations starting in 2011. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 21
CPO Price (CIF N.W.Europe) Rubber Price (RSS 3 SICOM)
US$/tonne US$/KG 1400 6.00
1200 5.00
1000 4.00 800 3.00 600 2.00 400
1.00 200
0 0.00 Jun- 06 Jun-07 Jun-08 Jun-09 Jun-10 Jun- 06 Jun-07 Jun-08 Jun-09 Jun-10 Dec- 05 Dec- 06 Dec- 07 Dec- 08 Dec-09 Dec- 10 Dec- 05 Dec- 06 Dec- 07 Dec- 08 Dec-09 Dec- 10
2010 Review Higher rainfall over our estates during the first half of the year The economic upturn in 2010 provided a global impetus for affected the division’s harvest of nucleus FFB, which fell by 2% to stronger market demands and higher commodity prices. CPO 2,564,206 tonnes over the previous year. prices (CIF Rotterdam) rebounded strongly from US$683 per tonne in 2009 to US$901 per tonne in 2010, while crude oil As a result, CPO production decreased 3% to 739,885 tonnes on prices averaged around US$79 per barrel in FY2010. The recovery the back of lower nucleus FFB output and lower purchases from in CPO prices was supported by: plasma and third-party farmers. Oil extraction rates remained stable at 22.3% versus 22.8% in 2009. At the same time, CPO • Increased imports and consumption of vegetable oils in China sales volume to the Edible Oils and Fats division increased from and India 60% to 80% this year. • Tighter supplies from major producers such as Malaysia and Indonesia Dry rubber production declined 2% from 25,720 tonnes in 2009 to 25,139 tonnes this year resulting from wet weather that • Consistent demand due to price competitiveness and the affected morning tapping operations. drawdown of stocks
• Reduced production yields due to adverse weather conditions As at 31 December 2010, the division’s oil palm planted area exacerbated by El Nino in 2009 and La Nina in 2010 stood at 205,064 hectares, with new plantings occupying 15,041 Rubber prices staged a similar rebound due to lower global hectares. Mature oil palm estates constituted 155,400 hectares, production and higher global demand prompted by a recovering a 22,840 hectare increase over 2009 as our young trees reached automotive industry. Exports, mostly to the US, accounted for maturity and started to bear fruit. At the end of 2010, immature most of the division’s rubber sales, with crumb (low-grade estates occupied 49,664 hectares (or 24% of our planted oil palm rubber) and rubber sheets (high-grade rubber) constituting 71% area) and are expected to be productive in the next 2 to 3 years. and 29% respectively.
In 2010, the plantation division recorded total sales of Rp7.0 trillion, a 16% increase over 2009 due to higher average selling prices of CPO, PK and rubber, as well as higher sales volume of palm seeds. EBITDA margins, excluding biological assets gain, improved from 41% in 2009 to 44% in 2010 as a result of the price increments. 22 Increasing Our Diversity, Enhancing Our Growth
Plantation REVIEW - palm oil
Oil palm plantation age profile
Above 20 Years Immature 22% 22%
Domestic demand for palm products is expected to be well suported; and IndoAgri
7-20 Years 4-6 Years remains committed to expand our planted 35% 21% area and output.
2011 Outlook bio-diesel driven by government mandates from Europe, Brazil The price of global vegetable oil, including CPO, is influenced by and Argentina. This may result in an intensified fight for acreage a complexity of factors ranging from demand for bio-diesel and in 2011, keeping prices well supported. petroleum prices, to global food consumption patterns and the strength of the US dollar. Looking ahead, our fundamentals for CPO production remain positive as 43% of our planted area have not reached peak We expect the domestic demand for palm oil products to remain maturity yields. We will continue to build scale by expanding supported in the short to medium term by an expanding food our oil palm acreage and increasing our output. Our production and beverage industry and population growth. In addition, the capacities will be enhanced with the construction of two 45 FFB- importance of vegetable oil and palm oil supply is expected to per-hour palm oil mills in Kalimantan and South Sumatra. Our be supported by an improving economic climate underpinned focus on R&D and emphasis on sustainable agricultural practices by robust consumption growth from India, China and other will create added advantages as we gear up for future expansion. emerging markets, and coupled with stronger demand for
FEB production (nucleus) CPO production
‘000 mt ‘000 mt
3,000 800 763 740 2,613 714 2,496 2,564 2,500 600 2,000
1,506 384 1,500 400
1,000 200 500
0 0 07 08 09 10 07 08 09 10 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 23
Plantation REVIEW - Sugar
Overview For the second consecutive year, the sugar industry was caught in the widening gap between world consumption and global production. Sugar prices rose on expectations that countries, including Indonesia, are still struggling to attract the import levels required to meet domestic demand. Tightening world supplies have triggered rapid increases in white sugar prices on the London International Financial Futures and Options Exchange (LIFFE), with prices increasing by 27% from an average of US$486 per tonne in FY2009 to US$616 per tonne in FY2010.
Limited stocks and persistent dry weather have led to deficits in Brazil, the world’s largest sugar producer, where pressure and mounting requirements from China and India are driving import demand for raw sugar. In India, the government’s consent to sugar exports, even though it is building a domestic stockpile, remains fluid and will add to price volatility.
According to Dewan Gula Indonesia, Indonesia consumed 5.4 million tonnes of sugar, of which 3.2 million tonnes or 59% were imported in 2010. As a net sugar importer, the situation is unlikely to change in the foreseeable future. In line with these factors, average domestic sugar prices in Indonesia have risen 28% to Rp10,502/kg in 2010 compared to a year ago. The current IndoAgri’s sugar division to government floor price of Rp6,350/kg ensures a minimum selling price for domestic sugar. make notable contributions The cultivation and production of sugar in Indonesia is driven when targetted plantings are by strong consumer demand, rising population growth and the achieved and milling facilities development of processed F&B industries. To protect and support its domestic sugar producers, the government imposes a floor are fully operational this year. price mechanism on sugar prices and import quotas.
The favourable locations of our estates and the vertical integration of our agribusinesses combine to give IndoAgri several competitive advantages:
Sugar Price (LIFFE) • On the upstream, we are able to achieve better yields and lower costs through economies of scale US $/Ton • Our experience in large-scale plantation management allows
900 us to tap into specific expertise on agronomical conditions in Indonesia 800 • Our affiliation to our parent company, PT ISM, allows us to 700 leverage on their wide distribution networks, ensuring a 600 more efficient distribution of our end products to customers 500 in the industrial and retail sectors 400 Upon completion in 2011, our 8,000 TCD sugar factory in South 300 Sumatra will ramp-up our sugar production capacity enabling us 200 to process the cane from our own plantation. 100 0 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 24 Increasing Our Diversity, Enhancing Our Growth
Plantation REVIEW - Sugar
2010 Review 2011 Outlook For the year in review, the division made steady progress in new In the year ahead, market sentiments are likely to depend plantings, and continues to oversee the construction of its new on, among other factors, government policies and how they sugar factory in South Sumatra. Total nucleus planted area for influence the movement of sugar prices around the world. For sugar cane increased 30% or 2,630 hectares from 8,672 hectares instance, sugar exports from India, the world’s second biggest in 2009 to 11,302 hectares in 2010. Our harvested area of 5,444 sugar producer but the largest consumer, will depend on the hectares yielded 79 tonnes of sugar cane per hectare, producing country’s output and the government’s willingness to build stock. 429,828 tonnes of sugar cane in 2010. In Indonesia, sugar cane harvests have been marred by higher Our Central Java factory, which began operations in 2009, has rainfall in 2010, and this is likely to increase Indonesia’s the capacity to process more than 540,000 tonnes of sugar dependence on imports in 2011. To meet demand, the cane each year. From our local smallholders, the factory received government has granted licenses for the import of raw sugar and 397,444 tonnes of sugar cane supplies and together with 9,981 plans to import white sugar for the first part of the year before tonnes of imported raw sugar, we produced 35,014 tonnes the 2011/12 harvest begins. of sugar (of which 15,960 tonnes represent farmers’ share). While market uncertainties remain, the division will continue to As part of our agriculture extension services to farmers and focus on its sugar cane planting programme, expansion of cane smallholders in Java, we provided cash advances for new plantings supply from local smallholders in Central Java and the completion and fertiliser. We also offered agronomic advice on fertiliser of its South Sumatra sugar mill in 2011. We hope to achieve a application, seed and cane varieties to increase their awareness targeted planted area of up to 16,000 hectares in South Sumatra of optimal harvesting times and fertiliser usage. These efforts by the end of 2011. have strengthened sugar cane yields among our smallholders, improving the supplies we receive from 4,000 hectares of sugar Although domestic sugar production should improve through estates under their charge. In total, the Java factory supported better yields and agronomy over the next three to five years, 600 local farmers. growing population numbers and domestic demand is expected to sustain Indonesia’s status as one of the world’s largest Sugar revenue were Rp273 billion in 2010 compared to sugar importers. Rp146 billion last year. Construction of our 8,000 tonnes of canes per day (“TCD”) sugar factory in South Sumatra is expected to Against these factors, we expect to start making notable be on target for completion in 2011. We expect the contribution contributions when our milling facilities are fully operational, and to improve when the new sugar mill is commissioned and when we achieve our targeted planted area in 2011. production levels increase in 2011. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 25
Manufacturing Process for sugar
Cane Handling & Milling
Bagasse
Filter Cake Juice Clarification Boiler & Evaporation
Sugar Boiling & Curing Final Molasses
Sugar Drying & Handling
Finished Sugar Product
End Customers 26 Increasing Our Diversity, Enhancing Our Growth
Plantation REVIEW - R&D
R&D remains the key engine in our efforts to build sustainable growth, and our research centre ensures the application of best practices across our estates.
Overview The Group’s R&D activities are focused in the following areas: IndoAgri’s commitment and investments in R&D continue to yield • Plant breeding numerous benefits and innovations across its operations and supply chain. These range from improvements in plant breeding, To augment traditional breeding methods, we invest in the agronomy, plant nutrition, plant protection and fertiliser usage, production of top-quality seeds and planting materials, to the development of new products tailored for different needs leveraging a diverse germ-plasm base, latest biotechnology in the industrial and consumer segments. and years of field trials across different environments. These processes ensure the genetic consistency of our seed Sumatra Bioscience (“SumBio”), our research centre in North products, preserving our status as the biggest producer of Sumatra, offers comprehensive facilities for the analysis of soil, premium oil palm seeds in Indonesia. plant tissue, fertiliser, palm oil and latex. Besides 20 years of • Agronomy scientific experience, the centre also provides expertise in plant Detailed and accurate databases and analyses on soil tissue culture, biotechnology, pathology and entomological management and crop cultivation techniques enable us to research. Its advanced seed-breeding programmes produce up reliably forecast crop yields, evaluate oil extraction rates and to 25 million superior oil palm seeds each year. The Group also recommend optimal planting densities and fertiliser usage to operates research and seed-breeding facilities in Riau, which ensure the highest productivity across our estates. produces up to 8 million high-quality and high-yielding seeds per annum. • Crop protection Our crop protection efforts are focused on the development Moreover, our research centres are actively engaged in the of biocontrol methods besides integrated pest management management of our plantations, extending applied R&D to systems to minimise crop losses, and to monitor for potential maximise the productivity and efficiency of our seed breeding pest and disease outbreaks. and cultivation programmes. Together, these centres provide a • Data management analysis methodological framework for our farming operations, ensuring the application of best practices in plantation management Our cumulative database, enhanced by years of estate data across our estates. and genomic analyses, provides accurate and evidence-based interpretation of estate performance, cultivation trends and field-trial results.
Additionally, R&D will spearhead our efforts to lower labour and production costs, develop agronomical best practices and enhance crop protection while improving environmental sustainability and profitability in the long run. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 27
2010 Review We will continue to invest in applied bioscience to raise our yield Sales volumes soared 239% from 5.4 million oil palm seeds in potential and sustain our commercial, environmental and societal FY2009 to 18.2 million in FY2010, due to the pick up in new competitive advantages. We will also focus on agronomy, crop plantings following a slow down triggered by the global economic protection methods using biological agents and the development condition last year. of robust systems to realise the genetic potential of our seeds across our different breeding environments. In line with our R&D thrust, we have intensified the deployment of aerial photography and satellite technology through Geographic We seek to exploit the latest information technology for the Information Systems, which monitors and maps the health of our management of our expanding database generated from field estates through user-friendly graphical interfaces. The system trials and commercial plantings. Together, we believe these marks out specific areas of concern in coloured codes, flagging efforts will enhance the value of our seed products, and reiterate out potential issues with greater operational efficiency. our brand promise of producing seeds with the highest possible genetic quality. The Group is also evaluating the establishment of a new Genetics Research and Development Centre at Bah Lias in North Sumatra. All said, the dedication to R&D garners substantial benefits for The extension will complement our existing facilities and drive the the Group and its communities at large. Improvements in crop commercialisation of our research in genomics and biotechnology yields will lower production costs, increase supplies and reduce to a higher level. the pressure for new land clearings. In the longer term, these benefits could alleviate global food shortage and contribute 2011 Outlook to the sustainability of Indonesia’s forests, peat-swamps and The Group aims to improve its competitiveness and enhance natural biodiversity. its seed breeding programmes in 2011. We will continue to integrate the disciplines of genomics, cytology and tissue culture to expedite our initiatives in biotechnology and seed cultivation.
In 2011, we expect demand for oil palm seeds to remain supported as a result of global food shortage and improved economic conditions. Major oil palm plantation companies have resumed their expansion programmes during the second half of 2010. 28 Increasing Our Diversity, Enhancing Our Growth
Edible oils & Fats Review
IndoAgri commands a leading market share in Indonesia for cooking oil, together with margarine and shortening products.
Overview Our CNO and their derivative products are mainly exported The Edible Oils & Fats Division manufactures and markets to the US, Europe and Asia. They are used in the production IndoAgri’s downstream products. These include cooking oil, of detergents, personal care products, lubricants, solvents margarine, shortening, crude coconut oil (“CNO”) and other and bioplastics, while copra-extraction pellets are sold as by-products derived from palm refinery, fractionation and animal feeds. crushed copra. As a Group, we enjoy economies of scale from leveraging the Our range of cooking oil command leading market shares in distribution channels of our parent company to reinforce our own Indonesia. Bimoli, the Group’s best-selling brand, has garnered a market penetration efforts. Together, we have a comprehensive loyal following in the domestic market since 1978. Together with network of 120 distributors and direct sales channels serving Happy Salad Oil and Delima, the division offers a variety of high some 291,000 retail outlets across Indonesia. quality cooking oil catering to different culinary needs. The division operates five refineries located in Jakarta, Surabaya, Our margarine and shortenings also enjoy a strong presence in Medan and Bitung. Among them, Phase 1 of the Tanjung Priok Indonesia, where they are sold under the Simas Palmia, Palmia refinery in North Jakarta, which was completed in end-2010, Amanda and Malinda brands, which are among the leading has added 420,000 tonnes to our processing capacity this brands. Domestic consumption accounts for approximately year. Collectively, the division has a total processing capacity of 75% of total margarine and shortening sales, with the bulk of it 1.4 million tonnes of CPO per year. In 2010, the division refined coming from industrial pack margarine and shortening supplied 635,036 tonnes of CPO of which 91% were supplied from the to bakeries, snacks and biscuits manufacturers. Group’s plantations. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 29
IndoAgri will continue to improve brand visibility and reinforce our distribution channels.
2010 Review The new 420,000-tonne per year refinery at Tanjung Priok, The division recorded revenues of Rp6.6 trillion in FY2010, complete with advanced machinery and storage facilities, will which is 12% higher compared to the Rp5.9 trillion achieved in allow us to meet growing consumer and industrial demand with FY2009. This was the result of higher average selling prices and greater efficiency and higher processing capacities. Completion sales volume from cooking oil and margarine, EBITDA fell from of the bottling and margarine plants in 2011 will enable us to Rp124 billion in FY2009 to Rp93 billion in FY2010 due largely to better meet the demand within the domestic market. keener competition. In the year ahead, we will continue to focus on the following 2011 Outlook business strategies: We expect the domestic demand for palm oil products to • Strengthen our market competitiveness through lower remain supported in the short to medium term by Indonesia’s production costs and increased efficiencies through our expanding food and beverage industry and population growth. supply chain management With our strong branding, comprehensive distribution networks and robust marketing strategies, we are well positioned to face • Maintain awareness and improve brand visibility through the challenges ahead. We will continue our efforts to retain selective and focussed marketing strategies our loyal customer base to help preserve our position in the • Reinforce distribution channels in order to open new markets domestic market. and penetrate into rural and suburban areas 30 Increasing Our Diversity, Enhancing Our Growth
Manufacturing Process FOR Edible oils & Fats
Fresh Palm Fruit Bunches
Empty Fruit Bunches and Milling By Products
Crude Palm Oil Palm Kernel
Refining Palm Kernel Meal Crushing
RBD Palm Oil Palm Fatty Acid Distillate Crude Palm Kernel Oil
Fractionating & Filtration
RBD Palm Stearin Lauric Oil RBD Palm Olein Packaging
Margarine Plant Cooking Oil
Flavouring & Blending Vitamins Blending
Mixing Tank Water & Salt Mixing Tank
Nitrogen gas
Chilling Chilling
Packaging Packaging
Shortening Margarine INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 31
Environment & CSR
Environment and Corporate Our Riau estates are next in line for RSPO audit in 2011, and Social Responsibility processes relating to the identification and analysis of High As an agribusiness, IndoAgri’s day-to-day operations are closely Conservation Value (“HCV”) estates and Corporate Social linked with the environment, ecosystems and communities. We Responsibility (“CSR”) will be assessed. We will continue to are deeply conscious of our social impact and responsibilities uphold the RSPO’s rigorous standards, and strive to increase our towards our surroundings, and remain committed to the highest sustainable palm oil output in the near future. A self-assessment standards of sustainable farming and production. study will be conducted by Tuv-Nord, the RSPO certification body, in February/March 2011 prior to the actual audit. Sustainable Production and Agricultural Practices This year, we conducted seminars on the Awareness, Interpretation The certification of our North Sumatran estates by the and Development of Environmental Management Systems as Roundtable on Sustainable Palm Oil (“RSPO”) has accelerated part of our ISO14001:2004 obligations. We also carried out staff our momentum for the pursuit of sustainable agriculture and training programmes on Occupational and Safety Management production processes. The RSPO certification represents the Systems (“OHSAS”) under the guidelines of OHSAS 18001:2007. toughest environmental and community standards in the palm These efforts reinforced the seriousness of our sustainability oil industry. Out of 739,885 tonnes of palm oil produced by the message to employees Group-wide. Group this year, approximately 170,000 tonnes were certified sustainable under RSPO’s stringent criteria. Through our subsidiaries PT SIMP and Lonsum, the Group is a member and an active advocate of the RSPO, which promotes Maintaining our certified status requires the satisfaction the growth and use of sustainable oil palm products through of 39 criteria and 139 objective indicators grouped under regular interactions with stakeholders. Under the auspices 8 overriding principles covering transparency, compliance of the Indonesian National Interpretation Working Group to laws and regulations, long-term economic and financial (“INA-NIWG”), we are also involved in the formulation and viability, best practices, environmental and community interpretation of RSPO’s Principles and Criteria within the laws responsibility, responsible development of new plantings and and context of Indonesia. continuous improvements.
Summary of the RSPO Principles & Criteria (P&C) Principle Number of Indonesian National Criteria Interpretation indicators Major Minor 1. Commitment to transparency 2 5 0 2. Compliance with applicable laws and regulations 3 8 4 3. Commitment to long-term economic and financial viability 1 1 1 4. Use of appropriate best practices by growers and millers 8 13 25 5. Environmental responsibility and conservation of natural resources 6 12 10 and biodiversity 6. Responsible consideration of employees and of individuals and 11 13 23 communities affected by growers and mills 7. Responsible development of new plantings 7 12 10 8. Commitment to continuous improvement in key areas of activity 1 1 1 Total 39 65 74 32 Increasing Our Diversity, Enhancing Our Growth
Environment & CSR
Our Environmental Stewardship Protection of High Conservation Value Forests Aside from sustainable production and agricultural standards, The protection and management of estates with high conservation the Group believes in active environmental stewardship and value remain key priorities for the Group. During our plantation implements a diversity of sustainable agricultural practices across development process, special care is taken to identify and its plantation estates and processing plants. map these areas, monitoring them for signs of erosion. We also run training programmes to educate our personnel in the Zero Burning Policy identification and preservation of flora and fauna. These activities We have a zero burning policy on the clearing of plantation comply with the RSPO’s Principles and Criteria. estates. Fully mechanised methods are deployed for the felling and stacking of trees during replanting and land clearing. Advancing technology to promote sustainability Recycling of Mill Effluent and Other By-Products Building on past achievements, we are developing strategies for Solid and liquid by-products such as empty fruit bunches, precision agriculture by constructing detailed yield maps on a decanter cakes and effluent from our palm oil mills are recycled per-hectare basis to identify optimal conditions for FFB harvest. in the field as mulch and irrigation water. The high potassium This endeavour will help us to achieve higher crop yields with content found in these by-products offers an effective substitute lower fertiliser input. In addition, the maps can be prepared for a for chemical fertilisers. As such, we have reduced our reliance on wide variety of analysis including soil type, rainfall and moisture inorganic fertilisers, saving up to 14% in fertiliser costs each year. and fertiliser application. We will heighten the use of such by-products, and find ways to Each year, we subject the work processes at our plantations and improve their benefits and ease of application. factories to thorough reviews. These efforts have streamlined Natural Solutions for Pest Management operations and lowered business costs while improving efficiency The use of barn owls to combat the prevalence of rats in oil at different levels of the production process. Where appropriate, palm plantations has proven to be highly effective at IndoAgri. we have introduced mechanised methods of production to By creating a natural environment that favours the predatory support our sustainability framework. instincts of barn owls, we have minimised the use of anti- coagulant rodenticides, herbicides and insecticides, thereby sparing the ecosystem from large amounts of harmful chemicals. Since its inception in 1995, our barn owl programme has been so successful that an estimated 4,200 owls in 2,334 nest boxes can be found across the 57,000 hectares of our Riau estates, making us the only plantation company using barn owls for pest control on such a large scale. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 33
Strong Partnerships With Our Health Communities Our contributions to public health infrastructure extend from new The size and scope of our plantations come with a responsibility medical clinics and emergency care units, to community activities to the communities where we operate. That is why mutually promoting blood donation and immunization programmes. beneficial relationships underscore our partnerships with local We also carry out regular fogging to curb mosquito breeding. farmers and their families, and are important to the long-term success of our sustainable business model. The Group continues Infrastructure/Public Facilities to engage its local stakeholders through the following community Each year, we improve transportation access by building and development initiatives: repairing roads and bridges. We maintain public installations for power and water supplies, and expand telephone networks to Employment improve communication. The Group provides direct and indirect employment opportunities for local residents and the plasma community through a wide Religious range of jobs each year. As at 31 December 2010, we have a We support the building of places of worship, and continue to workforce of 31,162 deployed in administrative, operational distribute food packages to underprivileged families during the and supervisory roles, as well as in middle and senior Lebaran and Christmas festive seasons. management positions. Sports & Youth, Arts & Culture No1 Position Total We forge community bonds through the provision of sports facilities and sponsorship of sports tournaments, musical 1 Senior Management 74 concerts, cultural activities and religious events. 2 Management 271 3 Supervisors 818 Local Business Development 4 Administrative and operation staff 29,999 We encourage local entrepreneurship through incentives for small businesses such as goat breeding and pallet production Total 31,162 amongst others. Education As a socially responsible business, the Group believes in symbiotic We encourage learning among the younger generation, and relationships with its communities and the environment. As continue to promote literacy through schools and scholarships. we expand our operations, sustainable agribusiness practices As at 31 December 2010, the Group sponsored 11 elementary and a firm commitment to corporate social responsibility schools, 4 junior high schools and 3 senior high schools, will differentiate us from our competitors and position us for providing free or highly subsidised education for 7,461 of its future growth. employees’ children.
Description No. of No. of schools students Elementary schools 11 5,094 Junior High Schools 4 1,627 Senior High Schools 3 740
We also provide a variety of learning aids including textbooks, school furniture, science labs and computers, as well salaries paid to teachers and administrative staff. Our Management Our Management 36 Increasing Our Diversity, Enhancing Our Growth board of directors
1 2
1. Mr Lee Kwong Foo Edward 2. Mr Lim Hock San Chairman and Lead Independent Director Vice Chairman and Independent Director
Mr Lee spent 36 years in the Singapore Administrative Service Mr Lim is presently the President and CEO of United Industrial (Foreign Service Branch), during which time he served as Corporation Limited and Singapore Land Limited. He is also the Singapore’s High Commissioner in Brunei Darussalem (1984 Non-executive Chairman and Independent Director of Gallant to 1990), Ambassador to the Philippines (1990 to 1993) and Venture Ltd. Mr Lim started his career in 1966 with the then Ambassador to Indonesia (1994 to 2006). Inland Revenue Department of Singapore. He became an Accountant at Mobil Oil Malaya Sdn Bhd in 1967 before joining Mr Lee was awarded the Public Administration Medal (Silver) in the Port of Singapore Authority in 1968, where he served in 1996, the Long Service Medal in 1997, the Public Administration various management positions. From 1975 to 1992, he was with Medal (Gold) in 1998 and the Meritorious Service Medal in the Civil Aviation Authority of Singapore and finally promoted to 2006 by the Singapore Government. In 1993, the Philippines the position of the Director-General. Government bestowed on him the Order of Sikatuna, Rank of Datu (Grand Cross). He has a Bachelor of Accountancy degree from the then University of Singapore, a Master of Science (Management) In 2007, the Indonesian Government awarded him the degree from the Massachusetts Institute of Technology and highest civilian honour, the Bintang Jasa Utama (First Class). attended the Advanced Management Program at Harvard Currently, Mr Lee is the Chief Executive of PT Ekalumintas, an Business School. He is a Fellow of The Chartered Institute of investment consultancy firm in Jakarta. He is also a member of Management Accountants (UK) and a Fellow and past President the National University of Singapore’s President’s Philantrhropic of the Institute of Certified Public Accountants of Singapore. Advisory Council. He is also a recipient of the Singapore Government Meritorious Service Medal, the Public Administration Medal (Gold) and the Mr Lee holds a Masters of Arts from Cornell University. Public Service Medal. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 37
3 4
3. Mr Mark Wakeford 4. Mr Moleonoto Tjang Chief Executive Officer and Executive Director Executive Director and Head of Finance and Corporate Services
Mr Wakeford is currently the President Director of PT Salim Ivomas Mr Tjang is currently a Director of PT Indofood Sukses Makmur Pratama, and President Director of PT Lajuperdana Indah, and a Tbk, and PT Perusahaan Perkebunan London Sumatra Indonesia director of PT Perusahaan Perkebunan London Sumatra Indonesia Tbk, Vice President Director of PT Salim Ivomas Pratama and Tbk (Lonsum). He started his career with Kingston Smith & Co, a Commissioner of PT Indofood CBP Sukses Makmur Tbk. He firm of Chartered Accountants in London, England. started his career in 1984 with Drs. Hans Kartikahadi & Associates, a public accounting firm in Jakarta. Before joining the Plantation Mr Wakeford has been in the plantation industry since 1993, Division of the ISM Group as CFO in 2001, he had held various working with plantation companies in Indonesia, Papua New management positions in the Salim Plantations Group since 1990. Guinea, Soloman Islands and Thailand. He started his plantation career as the Finance Director of Lonsum in 1993, based in He was awarded a Bachelor of Accountancy degree from the Indonesia, before moving to Pacific Rim Plantations Limited University of Tarumanagara in 1987, a Bachelor’s degree in (PROPL) as the CFO from 1995 to 1999, based in Papua New Management from the University of Indonesia in 1990 and a Guinea. In 1999, Mr Wakeford became CEO and Executive Master of Science degree in Administration & Business Policy Director of PROPL. PROPL was sold to Cargill in 2005, and from the University of Indonesia in 2002. He is also a registered Mr Wakeford spent one year with Cargill, prior to joining the accountant in Indonesia. Company in January 2007. Mr Wakeford became CEO of the Company in August 2007.
Mr Wakeford trained and qualified as a Chartered Accountant in London, England. He also attended the Senior Executive Program at the London Business School. 38 Increasing Our Diversity, Enhancing Our Growth board of directors
5 6 7
5. Mr Gunadi Group and moved on to join consumer goods manufacturer, Executive Director and Head of Plantation Operations Konica Film and Paper, in 1991. In 1994, he joined PT Indofood Mr Gunadi is currently a Director PT Salim Ivomas Pratama and Fritolay Makmur as National Sales and Promotion Manager. In Vice President Director of PT Perusahaan Perkebunan London 2000-2002, he worked as Branch Manager for the Noodle Sumatra Indonesia Tbk. Mr Gunadi started his career in 1977 with Division of ISM. Drs Hans Kartikahadi & Co., a public accounting firm in Jakarta. He was awarded a Master of Business Administration from He was with PT Besuki Indah Electric Industry (Luxor), Jakarta in De Montfort University in Jakarta (affiliate United Kingdom) 1979 as Finance Manager before joining PT Lippo Mulia Jakarta in 2000. in 1980 as Finance and Administration Manager.
7. Mr Tjhie Tje Fie From 1981 to 1991, Mr Gunadi was with PT Broco, Jakarta, as Non-executive Director Group Finance Director. In 1991, Mr Gunadi joined the Salim Plantations Group (which was subsequently acquired by PT ISM) Mr Tjhie was appointed as President Commissioner of PT as Senior Vice President (Finance). In 2004, he was appointed to Salim Ivomas Pratama in 2009 and Director of PT Perusahaan the position of Chief Operating Officer of PT SIMP. Perkebunan London Sumatra Tbk. He has been a Director of PT Indofood CBP Sukses Makmur Tbk since 2009, a Director Mr Gunadi has a Bachelor of Accountancy degree from University of PT Indofood Sukses Makmur Tbk (ISM) from 2004, President of Indonesia. Commissioner of PT Indofood Fritolay Makmur from 2009, a Vice President Commissioner of PT Indolakto from 2009 and 6. Mr Suaimi Suriady concurrently heads ISM’s Treasury Division. He previously served Executive Director and Head of Refinery and Commodity Division as a Director of PT Indomiwon Citra Inti and as Senior Executive Mr Suriady is currently a Director of PT Indofood CBP Sukses of PT Kitadin Coal Mining. Makmur Tbk since 2009 and PT Salim Ivomas Pratama since 2007. He has also served as President Director of PT Indofood Mr Tjhie was awarded a Bachelor’s degree in Accounting from Fritolay Makmur since 2002. He began his career working for an the Perbanas Banking Institute in Jakarta in 1991. automotive battery distributor, PT Menara Alam Teknik of Astra INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 39
8 9 10
8. Mr Axton Salim Controller of the Asia Pacific region. Before his present position Non-Executive Director in NUS, Mr Goh was the Regional Vice President & Controller Mr Axton Salim has been a Director of PT Indofood CBP Sukses as well as an Executive Director of John Hancock International Makmur Tbk, PT Indofood Sukses Makmur Tbk and PT Indolakto Pte Ltd. since 2009. He is also the director of Pacsari Pte Ltd since 2007. Mr Goh has a Bachelor of Arts (Hons) degree in Accounting and In addition, he is a Commissioner of PT Salim Ivomas Pratama Economics from Middlesex University (London, United Kingdom). since 2007, PT Nestlé Indofood Citarasa Indonesia from April 2010 and PT Perusahaan Perkebunan London Sumatra Indonesia 10. Mr Hendra Susanto Tbk since 2009. He began his career with Credit Suisse Singapore Independent Director in the Investment Banking Division. Mr Susanto was appointed as Commissioner in PT Salim Ivomas He was awarded a Bachelor of Science in Business Administration Pratama since 2009 and began his career with the Standard from the University of Colorado in 2002. Chartered Bank as an Account Relationship Manager of the Corporate Banking division in 1990. He joined PT BNP Lippo 9. Mr Goh Kian Chee Leasing in 1993 as the Head of the Corporate Marketing division. Independent Director In 1996, he joined PT ING Indonesia Bank as Vice President in Mr Goh is presently the CFO of National University of Singapore, the Project and Structured Finance division and was subsequently Centre For The Arts (NUS). He is also an Independent Director promoted to Director in the Wholesale Banking division of the of AsiaMedic Limited. Mr Goh started his career in 1979 as an bank. Mr Susanto also acted as the Chief Representative of ING audit trainee with Goldblatt & Co (UK). He joined American Bank N.V. in Indonesia until 2005. International Assurance Pte Ltd in 1981 as an Accounting Mr Susanto has a Bachelor of Computer Science degree and a Supervisor. In 1982, he became a Regional Internal Auditor in Master of Commerce degree from the University of New South Mobil Oil Singapore Pte Ltd and rose to the position of Regional Wales, Australia. Credit and Insurance Manager in 1987. In 1990, he was transferred to Mobil Petrochemicals International Ltd where he served as Regional Accounting Manager and later, as the 40 Increasing Our Diversity, Enhancing Our Growth
Corporate information
DIRECTORS Chairman and Lead Independent Director Lee Kwong Foo Edward
Vice Chairman and Independent Director Lim Hock San
Chief Executive Officer and Executive Director Mark Wakeford
Executive Director and Head of Finance and Corporate Services Moleonoto Tjang Executive Director and Head of Plantation Operations Gunadi Executive Director and Head of Refinery and Commodity Suaimi Suriady Non-Executive Director Tjhie Tje Fie
Non-Executive Director Axton Salim
Independent Director Goh Kian Chee
Independent Director Hendra Susanto
EXECUTIVE COMMITTEE REGISTRAR Mark Wakeford (Chairman) Boardroom Corporate & Tjhie Tje Fie Advisory Services Pte. Ltd. Moleonoto Tjang 50 Raffles Place Gunadi Singapore Land Tower #32-01, Suaimi Suriady Singapore 048623
AUDIT COMMITTEE REGISTERED OFFICE Goh Kian Chee (Chairman) 8 Eu Tong Sen Street Lim Hock San #16-96/97 The Central Hendra Susanto Singapore 059818
NOMINATING COMMITTEE COMPANY SECRETARIES Lee Kwong Foo Edward (Chairman) Lee Siew Jee, Jennifer Tjhie Tje Fie Mak Mei Yook Lim Hock San Hendra Susanto AUDITORS Ernst & Young LLP REMUNERATION COMMITTEE One Raffles Quay Lim Hock San (Chairman) North Tower, Level 18 Tjhie Tje Fie Singapore 048583 Goh Kian Chee AUDIT PARTNER Vincent Toong Weng Sum (appointed 20 April 2007) INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 41
Corporate Governance
The Board and Management of Indofood Agri Resources Ltd. (the “Company”) are committed to continually enhancing the standard of corporate governance principles and processes in managing the business and affairs, so as to improve the performance, accountability, and transparency of the Company.
This Corporate Governance Report sets out the Company’s corporate governance framework and practices, with specific reference to the principles and guidelines of the Code of Corporate Governance issued by the Ministry of Finance in July 2005 (the “Code”).
BOARD MATTERS
The Board’s Conduct of its Affairs (Principle 1)
The Board comprises Directors with a wide range of skills and experience in the fields of operations management, banking, finance, accounting, industry knowledge and knowledge of risk management. The Board considers that its Directors posses the necessary competencies to lead and govern the Company effectively. Each member of the Board will hold office pursuant to the provisions of the Articles and thereafter, shall be eligible for re-election unless disqualified from holding office.
The Board has overall responsibility for the corporate governance of the Company. Apart from its statutory responsibilities, the Board is responsible for:- (1) reviewing the financial performance and condition of the Group; (2) approving the Group’s strategic plans, key operational initiatives, major investment and funding decisions; (3) identifying principal risks of the Group’s business and implementing systems to manage the risks; and set the Company’s values and standards, continually to make them exemplary and the highest, and ensure that obligations to shareholders and other stakeholder are understood and met.
All Directors exercise independent judgement and make decisions objectively in the best interest of the Company.
The Board is assisted by various Board Committees, including Executive Committee, Audit Committee, Nominating Committee and the Remuneration Committee with clearly defined terms of reference. The term of reference set out the duties, authority and accountabilities of each committee.
The Corporate Governance Structure is as follows:
Shareholders
Remuneration Committee
Audit Committee Board of Directors
Nominating Committee
Internal Audit Executive Committee (“EXCO”)
Enterprise Risk Managment 42 Increasing Our Diversity, Enhancing Our Growth
Corporate Governance
Board Composition (Principle 2)
As of 31 March 2011, the Board comprises of ten Directors, of whom four are Executive Directors, two are Non-executives and four are Independent Directors.
Name Board of Directors Executive Audit Nominating Remuneration Status Position Committee Committee Committee Committee Lee Kwong Foo, Edward Lead Independent Chairman Chairman Lim Hock San Independent Vice Member Member Chairman Chairman Mark Wakeford Executive Member Chairman Moleonoto Tjang Executive Member Member Gunadi Executive Member Member Suaimi Suriady Executive Member Member Tjhie Tje Fie Non-executive Member Member Member Member Axton Salim Non-executive Member Goh Kian Chee Independent Member Chairman Member Hendra Susanto Independent Member Member Member
The Executive Committee (“Exco”) comprises Mr Mark Wakeford, Mr Tjhie Tje Fie, Mr Suaimi Suriady, Mr Gunadi and Mr Moleonoto Tjang. Mr Wakeford is the Chairman of the Exco. The Board delegates the Exco certain discretionary limits and authority for business development, investment/divestment activities, capital expenditure, finance/treasury, budgeting and human resource management, drawing up the Group’s annual budget and business plan for the Board’s approval, supervising the implementation of business strategies as approved in the annual budget and business plan, implementing appropriate systems of internal accounting and other controls, instituting a risk management framework and monitoring for compliance, adopting suitably competitive human resource practices and compensation policies, and ensuring that the Group operates within budget.
Regular meetings are held to deliberate the strategic policies of the Group including significant acquisitions and disposals, review and approve annual budgets, review the performance of the business and approve the release to the public of periodic financial results. In the event Directors are unable to attend Board meetings because of overseas commitments, they may still participate via telephone or any other forms of communication facilities.
The number of meetings and attendance by Board members during the financial year are set out in the table below:
Audit Nominating Remuneration Board Committee Committee Committee Number of meetings held during the financial year ended 5 8 1 2 31 December 2010 Lee Kwong Foo, Edward 5/5 n/a 1/1 n/a Lim Hock San 5/5 7/8 1/1 2/2 Mark Wakeford 5/5 n/a n/a n/a Moleonoto Tjang 5/5 n/a n/a n/a Gunadi 4/5 n/a n/a n/a Suaimi Suriady 4/5 n/a n/a n/a Tjhie Tje Fie 3/5 n/a 1/1 2/2 Axton Salim 2/5 n/a n/a n/a Goh Kian Chee 5/5 8/8 n/a 2/2 Hendra Susanto 5/5 8/8 1/1 n/a
Chairman n/a – “not applicable” INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 43
Chairman and Chief Executive Officer (Principle 3)
The roles of the Chairman and Chief Executive Officer (“CEO”) are separate persons with their own areas of responsibilities and accountabilities to ensure an appropriate balance of power and independency. The office of the Chairman of the Company is assumed by Mr Edward Lee, who is also the Lead Independent Director. As the Chairman, Mr Edward Lee bears responsibility for the working of the Board and reviewing the effectiveness of the governance process of the Board. The Chairman plays an important role in fostering constructive dialogue between shareholders, the Board and management at the AGM and other shareholder meetings.
The office of CEO is assumed by Mr Mark Wakeford. As the CEO, Mr Wakeford’s responsibilities include the charting and reviewing of corporate directions and strategies, which cover areas of marketing and strategic alliances. He is responsible for providing the Company with strong leadership and vision. The CEO and the Exco are responsible for day-to-day operation and management of the business.
Board Membership and Performance (Principles 4 and 5)
The Nominating Committee (“NC”) of the Company is chaired by Mr Edward Lee, the Chairman of the Board and the Lead Independent Director, with Mr Tjhie Tje Fie, Mr Hendra Susanto and Mr Lim Hock San as members.
The NC terms and reference were adopted from the Code and include the following duties and functions:-
(1) make recommendations to the Board on all board appointments and re-nomination having regard to the Director’s contribution and performance; (2) ensure that all Directors submit themselves for re-nomination and re-election at regular intervals and at least once in every three years; (3) determine annually whether a Director is independent, guided by guidelines in the Code; (4) decide if a Director is able and has adequately carried out his duties as a Director of the Company where he has multiple board representations; and (5) decide how the Board’s performance may be evaluated and propose objective performance criteria.
Each year, the Directors are requested to complete appraisal forms to access the overall effectiveness of the Board. The NC will assess and discuss the performance of the Board as a whole and will ascertain key areas for improvement and requires follow-up actions. The results of the evaluation, including comments and recommendations from the Board members, will be presented by the NC Chairman to the Board with a view to enhance the effectiveness of the Board as a whole.
Access to Information (Principle 6)
Prior to each Board meeting, Management provides the Board with timely and complete information to enable them to be fully cognizant of the decisions and actions of the Company’s executive management and to discharge their duties effectively.
The Directors have separate and independent access to the Company Secretaries. The Company Secretaries attend the Board and committee meetings to ensure that Board procedures are followed and applicable rules and regulations are complied with.
Senior members of the management are available to provide briefings to the Directors or presentation at the Board Meetings, or by external consultants engaged on specific projects. 44 Increasing Our Diversity, Enhancing Our Growth
Corporate Governance
REMUNERATION MATTERS (Principles 7, 8 and 9)
Procedures in Developing Remuneration Policies
The Remuneration Committee (“RC”) of the Company is chaired by Mr Lim Hock San, an Independent Director, with Mr Tjhie Tje Fie and Mr Goh Kian Chee as members.
The role of the RC is to review and approve the remuneration package and terms of employment of the Company’s Directors and key executives who are connected and deemed to be Substantial Shareholders of the Company.
In its review and approval of the recommendations on remuneration policies and packages for the Company Directors, the RC will cover all aspects of remuneration including but not limited to Directors’ fees, salaries, allowances, bonuses, share options and benefits- in-kind. The RC’s recommendations will be made in consultation with the CEO and submitted for endorsement by the entire Board. Payments of Directors’ fees are subject to shareholders’ approval at the AGM.
RC members will abstain from deliberations in respect of their own remuneration and the RC is also empowered to review human resource management policies of the Group.
The remuneration policy of the Group will seek, inter alia, to align the interests of employees with the Group, to reward and encourage performance based on its core values and to ensure that remuneration is commercially competitive to attract and retain talent. Proposed Directors’ fees will be submitted as a lump sum for shareholders’ approval in general meeting and the sum is divided amongst the Directors with those having additional responsibilities as chairman or members of Board Committees receiving a higher portion of the approved sum.
Disclosure on Remunerations
The remunerations of the Directors and Key Executives, in the bands of S$250,000, for the financial year ended 31 December 2010 are set out in the table below. The remunerations of the Executive Directors and the Key Executives contain a component that is performance related and linked to the consolidated results of the Group.
Name of Directors/Key Executives Base/Fixed Bonus/ Benefits Directors Fee Share Options and Remuneration Bands Salary % % % % Directors of the Company S$1,000,000 to S$1,250,000 Mark Wakeford 78 22 – – Moleonoto Tjang 31 69 – –
S$500,000 to 750,000 Gunadi 34 66 – –
Below S$250,000 Lee Kwong Foo, Edward – – 100 – Lim Hock San – – 100 – Goh Kian Chee – – 100 – Hendra Susanto – – 100 – Tjhie Tje Fie (1) – – – – Axton Salim (1) – – – – Suaimi Suriady (1) – – – – INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 45
Base/Fixed Name of Directors/Key Executives and Bonus/ Benefits Directors Fee Share Options Salary Remuneration Bands % % % % Key Executives of the Group S$500,000 to S$750,000 Wilihar Tamba 39 61 – – (Chief Operating Officer - Plantation)
S$250,000 to S$500,000 C.Y.O. Sorongan 44 56 – – Senior Technical Advisor Engineering Rolly B Mendoza 44 56 – – Vice President Controller
Below S$250,000 Mak Mei Yook 79 21 – – Chief Financial Officer Tan Agustinus Dermawan 39 61 – – Group Controller
(1) Remunerations were paid by the parent company, PT Indofood Sukses Makmur Tbk or other group of companies.
There was no employee in the Group who was an immediate family member of a Director and/or a Substantial Shareholder whose remuneration exceeded S$150,000 during financial year ended 31 December 2010.
Other Remuneration Matters
The Company’s Share Option Scheme 2002 was approved by the former Board and shareholders of the Company at an Extraordinary General Meeting held on 19 June 2002. No option was granted during the financial year ended 31 December 2010. The Board will be looking into whether a new ESOS should be implemented. 46 Increasing Our Diversity, Enhancing Our Growth
Corporate Governance
ACCOUNTABILITY AND AUDIT (Principles 10, 11, 12 and 13)
Accountability
The Board is accountable to the shareholders and is mindful of its obligations to furnish timely information and to ensure full disclosure of material information to shareholders in compliance with statutory requirements and the Listing Manual of the SGX-ST.
Audit Committee (“AC”)
The AC of the Company comprises three independent Directors, including the Chairman. The AC is chaired by Mr Goh Kian Chee with Mr Lim Hock San and Mr Hendra Susanto as members. A majority of the AC members, including the AC Chairman, have expertise or experience in financial management and are qualified to discharge the AC’s responsibilities.
The AC has the following functions:-
(1) review with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their audit report, their management letter and the management’s response; (2) review the quarterly, half-yearly and annual financial statements before submission to the Board for approval, focusing on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, the going concern statement, compliance with applicable accounting standards and stock exchange and statutory/ regulatory requirements; (3) review the effectiveness and adequacy of the Group’s internal financial controls, operational and compliance controls and procedures, risk management policies and systems and co-ordination between the external auditors and the management, review the assistance given by management to the auditors and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of management where necessary); (4) review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Company’s operating results or financial position, and the management’s response; (5) consider the appointment or re-appointment of the external auditors, the audit fee, and matters relating to the resignation or dismissal of the auditors; (6) review Interested Person Transactions; (7) review the whistle-blower arrangements instituted by the group through which staff may in confidence, raise concerns and possible improprieties in matters of financial or other matters. (8) review the Group’s ERM reports. (9) undertake such other reviews and projects as may be requested by the Board and report to the Board its findings from time to time on matters arising and requiring the attention of the AC; and (10) generally undertake such other functions and duties as may be required by statute or the Listing Manual, and by such amendments made thereto from time to time.
External Auditors
The external auditor assists the AC in driving internal controls and risk management activities and the Board in fulfilling its overall responsibilities relating to compliance risk concerns and systems of internal controls.
The AC recommends to the Board the appointment, re-appointment and removal of the external auditors, and approves the remuneration and terms of engagement of the external auditors.
The AC reviews the scope and results of audit work carried out by external auditors and independence of the external auditors annually. The AC met with the external auditors 4 times a year including once without the presence of management.
The AC, having reviewed the range and value of the non-audit services performed during the financial year by the external auditors, Ernst & Young LLP, was satisfied that the independence of the external auditors has not been impaired by the provision of those services. The AC recommended that Ernst & Young LLP be nominated for re-appointment as the external auditors at the forthcoming AGM. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 47
Internal Audit
The Group has an Internal Audit Department (IAD) that is independent of the activities it audits. The IAD plans its internal audit schedules in consultation with Management and submits its plan to the AC for approval. The Head of Internal Audit reports directly to the Chairman of the Audit Committee on the internal audit matters. The AC met with the internal auditor 4 times a year including once without the presence of Management.
The duties and responsibilities of the IAD with regard to risk management and internal controls are summarized below: (1) review the risk profile of the Company; (2) identify and make recommendations to eliminate or control risks to improve the risk profile; (3) recommend risk parameters within which the Company should operate; (4) review risk mitigation efforts and its cost; (5) monitor the implementation of the mitigation efforts and risk parameters (6) establish and maintain a risk reporting and risk monitoring framework
IAD operates within the framework set out in the Internal Audit Charter and Code of Ethics which is approved by the Management and the AC. It implements a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, controls and governance processes. The IA work plan is established independent of management which is also approved by the AC.
The Audit Committee, with the assistance of internal audit, reviews the adequacy and effectiveness of the system of internal controls of the Group on an on-going basis.
The Group also engages Deloitte Touche Tohmatsu (Deloitte), from time to time, on an assignment basis to perform the internal controls system review. Deloitte has a direct reporting line to the Audit Committee.
Enterprise Risk Management (“ERM”)
Risk management is an integral part and is at the forefront of the Group’s overall effort to promoting good corporate governance across all its businesses and operations, enabling it to be more proactive and prepared in dealing and addressing the various challenges and uncertainties it faces in a tough and competitive business environment, and in the process, transforming them into business opportunities.
Standardized Risk Management Framework
Since its inception in 2009, the Group’s ERM Team, which is now fully integrated and coordinated, has consolidated all of the Group’s risk management activities, initiatives and processes, and transforming them into a group-wide Standardized ERM Framework. The ERM Framework, which now enables the Group to manage existing, recurring and new/potential business risks and opportunities more effectively, involves an on-going process of identifying, evaluating, monitoring, managing and reporting significant risks affecting the Group. This provides the Group’s Executive Committee and its management team with a tool to anticipate and effectively manage both the existing and potential risk(s), taking into consideration the changing risk profiles, as dictated and influenced by ever-changing/ evolving business and regulatory environments and the necessary strategies formulated to deal with them, as well as changes in the functional activities throughout the year. Risk management reporting is done on a regular periodic basis whereby all critical and relevant risks and opportunities are prioritized in terms of their impact to the Group’s operations and the likelihood of their occurrence. 48 Increasing Our Diversity, Enhancing Our Growth
Corporate Governance
Continuously Enhancing Risk Management Culture and Operational Preparedness
In order to sustain the momentum brought about by its initial risk management activities and initiatives, the ERM Unit will continue to focus on emphasizing the importance of prudent risk management and promoting awareness through the continuous conduct of ERM socialization sessions and trainings to key employees within the Group in 2011.
Simultaneously, the ERM Department will initiate the creation/development of a formal Business Continuity Plan (BCP) in consultation with the Board of Directors/Senior Management and in close coordination with the Information System Division and all other departments directly related to the BCP development. BCP, which is an integral part of the Company’s overall Operational Risk Management, is of critical importance to continuity of business operations and services to maintain public trust and confidence in the events of disaster or disruption. The BCP will include the necessary policies (such as the roles and responsibilities, identified critical functions, timing of implementation); identified teams (such as emergency response, damage assessment, recovery team) designated handling the BCP; procedures to implement BCP; and needed infrastructure (such as alternate site, back-up server).
As part of the implementation of a better and more effective risk management program across the Group, the ERM Unit will also work and coordinate closely with the Internal Audit Department to focus on high risks areas, ensure accuracy of risk assessment reports, and check/verify the proper and full implementation of the risk mitigation strategies and controls
As part of the IA audit plan, IA will perform independent reviews of the risks and controls identified by the ERM to provide reasonable assurance to management and the Audit Committee in order that the key risks and controls will be adequately addressed, monitored and centralized.
Whistle Blowing Policy
The Group has put in place a whistle blowing policy and procedures (“Policy”). This Policy provides employees with clearly defined processes through which they may raise their concerns in good faith and in strict confidence with respect to suspected fraud, corruption, dishonest practices or other similar matters which do not comply with the Groups standard operating procedures to the Head of IA, Exco and AC.
The Policy aims to encourage the reporting of such matters in good faith, with the confidence that employees making such reports will be treated fairly and, to the extent possible, protected from reprisal.
The AC reviewed and approved the Policy and was satisfied that arrangements are in place for independent investigation of such matters and for appropriate follow-up actions. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 49
COMMUNICATION WITH SHAREHOLDERS (Principles 14 and 15)
The Company is committed to regular and timely disclosure of information pertinent to shareholders. Announcements are made on a timely basis, and within the prescribed periods, through the SGXNET as well as through press releases to the relevant media, if necessary.
The Company holds analysts briefings for quarterly and full year results with the presence of the CEO, CFO and senior management to answer relevant questions which the analysts may have.
The Company supports the Code’s principle to encourage the participation of shareholders at the General Meetings. All shareholders are given the opportunity to attend and vote at General Meetings. They can vote in person or by proxy if they are unable to attend the Meetings in person.
The Directors of the Company, as well as the external auditors are in attendance at the General Meetings to address any queries from shareholders.
Dealings in the Company’s Securities
The Group has adopted an Internal Code with regard to dealings in the securities of the Company by its officers. The Company restricts its officers to trade in the securities of the Company while in possession of price-sensitive information and during the period two weeks before the announcement of Group’s quarterly and half yearly financial results and one month before the announcement of Group’s full year financial results.
Directors and employees are expected to observe the insider trading laws at all times even when dealing in securities within permitted trading period. Indofood Agri Resources LTd. & Its subsidiaries financial statements
51 Directors’ Report
53 Statement by Directors
54 Independent Auditors’ Report
56 Consolidated Statement of Comprehensive Income
57 Balance Sheets
58 Consolidated Statement of Changes in Equity
59 Consolidated Cash Flow Statement
61 Notes to the Financial Statements INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 51
Directors’ report
The directors are pleased to present their report to the members together with the audited consolidated financial statements of Indofood Agri Resources Ltd. (the “Company”) and its subsidiaries (collectively the “Group”) and the balance sheet of the Company for the financial year ended 31 December 2010.
Directors
The directors of the Company in office at the date of this report are:
Lee Kwong Foo Edward Lim Hock San Mark Julian Wakeford Moleonoto Tjang Gunadi Suaimi Suriady Tjhie Tje Fie Axton Salim Goh Kian Chee Hendra Susanto
In accordance with Article 117 of the Company’s Articles of Association, Tjhie Tje Fie, Moleonoto Tjang, Gunadi and Lee Kwong Foo Edward retire and, being eligible, offer themselves for re-election.
Arrangements to enable directors to acquire shares and debentures
Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate.
Directors’ interests in shares and debentures
The following director, who held office at the end of the financial year had, according to the register of directors’ shareholdings required to be kept under section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Company and related corporations (other than wholly-owned subsidiaries) as stated below:
Direct interest Deemed interest At beginning At end At beginning At end Name of director of the year of the year of the year of the year
Ordinary shares of the Company
Mark Julian Wakeford 300,000 300,000 200,000 200,000
There was no change in any of the above-mentioned interests between the end of the financial year and 21 January 2011.
Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year. 52 Increasing Our Diversity, Enhancing Our Growth
Directors’ report
Directors’ contractual benefits
Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.
Options
No option to take up unissued shares of the company or its subsidiaries was granted during the year.
There were no shares issued during the year by virtue of the exercise of options to take up unissued shares of the Company or its subsidiaries whether granted before or during the year.
There were no unissued shares of the Company or its subsidiaries under option as at the end of the year.
Audit Committee
The audit committee performed the functions specified in the Act. The functions performed are detailed in the Reporton Corporate Governance.
Auditors
Ernst & Young LLP have expressed their willingness to accept reappointment as auditors.
On behalf of the Board of Directors,
Mark Julian Wakeford Director
Moleonoto Tjang Director
Singapore 8 March 2011 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 53
Statement by Directors
We, Mark Julian Wakeford and Moleonoto Tjang, being two of the directors of Indofood Agri Resources Ltd., do hereby state that, in the opinion of the directors:
(i) the accompanying balance sheets, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results of the business, changes in equity and cash flows of the Group for the year ended on that date, and
(ii) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.
On behalf of the Board of Directors,
Mark Julian Wakeford Director
Moleonoto Tjang Director
Singapore 8 March 2011 54 Increasing Our Diversity, Enhancing Our Growth
Independent Auditors’ Report For the financial year ended 31 December 2010
To the Members of Indofood Agri Resources Ltd.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Indofood Agri Resources Ltd. (the “Company”) and its subsidiaries (collectively the “Group”), set out on pages 56 to 132, which comprise the balance sheets of the Group and the Company as at 31 December 2010, the consolidated statement of changes in equity, the statement of comprehensive income and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Cap.50 (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 55
Independent Auditors’ Report For the financial year ended 31 December 2010
Opinion
In our opinion, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date.
Report on other legal and regulatory requirements
In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.
Ernst & Young LLP Public Accountants and Certified Public Accountants Singapore 8 March 2011 56 Increasing Our Diversity, Enhancing Our Growth
Consolidated Statement of Comprehensive Income For the financial year ended 31 December 2010
Note 2010 2009 Rp million Rp million
Revenue 5 9,484,281 9,040,325 Cost of sales 6 (5,733,805) (5,814,962)
Gross profit 3,750,476 3,225,363
Selling and distribution costs (297,839) (300,989) General and administrative expenses (729,158) (645,915) Foreign exchange gains 60,925 303,984 Other operating income 7 33,966 147,172 Other operating expenses 8 (134,196) (87,984) Gain arising from changes in fair value of biological assets 14 309,269 622,570
Profit from operations 9 2,993,443 3,264,201
Financial income 10 61,904 66,630 Financial expenses 11 (400,464) (443,271)
Profit before tax 2,654,883 2,887,560 Income tax expense 12 (748,728) (834,298)
Net profit for the year 1,906,155 2,053,262
Other comprehensive income: Gain on sale of treasury shares 144,152 – Changes arising from disposal of shares in a subsidiary company (13,600) – Other comprehensive income for the year, net of tax 130,552 –
Total comprehensive income for the year 2,036,707 2,053,262
Profit for the year attributable to:
Owners of the parent 1,402,013 1,526,829 Non-controlling interests 504,142 526,433
1,906,155 2,053,262
Total comprehensive income attributable to:
Owners of the parent 1,532,565 1,526,829 Non-controlling interests 504,142 526,433
Total comprehensive income for the year 2,036,707 2,053,262
Earnings per share (in Rupiah) 13 - basic 974 1,061 - diluted 974 1,061
The accompanying accounting policies and explanatory notes form an integral part of the financial statements. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 57
Balance Sheets As at 31 December 2010
Group Company Note 31.12.10 31.12.09 1.1.09 31.12.10 31.12.09 Rp million Rp million Rp million Rp million Rp million (Restated) (Restated)
Non-current assets Biological assets 14 10,453,082 9,486,096 8,152,865 – – Property, plant and equipment 15 6,791,435 5,696,726 4,376,429 65,844 70,001 Goodwill 16 3,155,786 3,155,786 2,994,523 – – Claims for tax refund 17 400,241 328,844 58,953 – – Deferred tax assets 18 363,149 294,327 239,314 – – Investment in subsidiary companies 19 – – – 7,383,633 8,487,971 Loans to a subsidiary company 20 – – – 2,259,501 2,259,501 Other non-current assets 21 906,907 848,691 746,694 22 24 Total non-current assets 22,070,600 19,810,470 16,568,778 9,709,000 10,817,497
Current assets Inventories 22 1,321,248 1,082,557 910,542 – – Trade and other receivables 23 940,366 839,656 852,441 20,943 17,626 Prepaid taxes 60,581 112,779 122,624 – – Cash and cash equivalents 24 3,795,993 1,802,345 2,408,266 1,621,112 183,450 Total current assets 6,118,188 3,837,337 4,293,873 1,642,055 201,076 Total assets 28,188,788 23,647,807 20,862,651 11,351,055 11,018,573
Current liabilities Trade and other payables and accruals 25 1,207,871 1,072,802 1,042,469 8,572 11,257 Interest-bearing loans and borrowings 26 2,815,520 1,746,464 2,379,649 – – Income tax payable 102,417 106,182 403,852 130 130 Total current liabilities 4,125,808 2,925,448 3,825,970 8,702 11,387
Non-current liabilities Interest-bearing loans and borrowings 26 4,955,185 4,491,213 3,876,936 – – Bonds and Sukuk Ijarah payables 26 723,109 721,802 – – – Other payables 27 284,832 323,096 239,278 – – Employee benefits liabilities 28 574,034 442,960 355,372 – – Deferred tax liabilities 18 1,825,524 1,763,993 1,589,593 – – Total non-current liabilities 8,362,684 7,743,064 6,061,179 – – Total liabilities 12,488,492 10,668,512 9,887,149 8,702 11,387
Net assets 15,700,296 12,979,295 10,975,502 11,342,353 11,007,186
Attributable to owners of the parent Share capital 29 3,584,279 3,584,279 3,584,279 10,912,411 10,912,411 Treasury shares 29 – (29,283) (29,283) – (29,283) Revenue reserves 30 7,287,264 5,885,251 4,358,422 285,790 124,058 Other reserves 31 138,819 8,267 8,267 144,152 – 11,010,362 9,448,514 7,921,685 11,342,353 11,007,186 Non-controlling interests 4,689,934 3,530,781 3,053,817 – – Total equity 15,700,296 12,979,295 10,975,502 11,342,353 11,007,186
The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 58 Increasing Our Diversity, Enhancing Our Growth
Consolidated Statement of Changes in Equity For the financial year ended 31 December 2010
Non- controlling Total Attributable to owners of the parent interests equity Share Treasury Other Revenue Total capital shares reserves reserve reserves Rp million Rp million Rp million Rp million Rp million Rp million Rp million
At 1 January 2009 3,584,279 (29,283) 8,267 4,358,422 4,366,689 3,053,817 10,975,502
Profit for the year – – – 1,526,829 1,526,829 526,433 2,053,262
Total comprehensive income for the year – – – 1,526,829 1,526,829 526,433 2,053,262 Purchase of treasury shares – – – – – 131,951 131,951 Dividend payment by subsidiaries – – – – – (108,234) (108,234) Non-controlling interests of acquired subsidiaries – – – – – (73,186) (73,186)
Balance at 31 December 2009 and 1 January 2010 3,584,279 (29,283) 8,267 5,885,251 5,893,518 3,530,781 12,979,295
Profit for the year – – – 1,402,013 1,402,013 504,142 1,906,155
Other comprehensive income: - Gain on sale of treasury shares – – 144,152 – 144,152 – 144,152 - Changes arising from disposal of shares in a subsidiary company – – (13,600) – (13,600) – (13,600)
Other comprehensive income for the year, net of tax – – 130,552 – 130,552 – 130,552
Total comprehensive income for the year – – 130,552 1,402,013 1,532,565 504,142 2,036,707
Contributions by and distributions to owners: - Sale of treasury shares – 29,283 – – – – 29,283
Total contributions by and distributions to owners – 29,283 – – – – 29,283 Changes in non-controlling interests due to disposal of shares in a subsidiary company – – – – – 777,854 777,854 Capital contribution from non- controlling interests – – – – – 29,774 29,774 Dividend payments by subsidiary companies – – – – – (111,117) (111,117) Non-controlling interests of acquired subsidiary companies – – – – – (41,500) (41,500)
Total transactions with owners in their capacity as owners – 29,283 – – – 655,011 684,294
Balance at 31 December 2010 3,584,279 – 138,819 7,287,264 7,426,083 4,689,934 15,700,296
The accompanying accounting policies and explanatory notes form an integral part of the financial statements. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 59
Consolidated Cash Flow Statement For the financial year ended 31 December 2010
Note 2010 2009 Rp million Rp million
Cash flows from operating activities
Profit before tax 2,654,883 2,887,560 Adjustments: Depreciation and amortisation 9 421,318 343,005 Unrealised foreign exchange gains (97,836) (386,179) Loss on disposal of biological assets 8 1,579 5,146 Loss /(gain) arising from changes in fair value of plasma receivables 8,33(a) 5,854 (886) Provision for uncollectible plasma receivables 8,33(a) 24,599 25,269 Write-off of property and equipment 8 2,177 1,667 (Gain) /loss on disposal of property and equipment 8 (1,100) 918 Net changes in provision for decline in market value and obsolescence of inventories 7,22 (7,988) (10,343) Write-off of plasma receivables 8,33(a) 26,459 26,602 Allowance /(write-back) of doubtful debts 9,23 304 (165) Gain from dilution of shareholding in a subsidiary company 7 – (56,286) Gain arising from changes in fair value of biological assets 14 (309,269) (622,570) Changes in provision for asset dismantling costs 8,27 2,347 3,219 Changes in employee benefits liabilities 131,074 87,588 Changes in fair value of long-term receivables 3,334 – Financial income 10 (61,904) (66,630) Financial expenses 11 400,464 443,271
Operating cash flow before working capital changes 3,196,295 2,681,186
Changes in working capital
Increase in other non-current assets (47,162) (319,290) Increase in inventories (230,703) (161,672) (Increase) /decrease in trade and other receivables (170,477) 60,610 Decrease /(increase) in advances to suppliers 59,490 (13,270) Decrease in prepaid taxes 52,197 9,845 Increase in trade and other payables 119,974 3,246 Increase in advances from customers 5,353 13,334
Cash flows generated from operations 2,984,967 2,273,989
Interest received 61,904 67,418 Interest paid (388,226) (441,092) Income tax paid (759,782) (1,012,558)
Net cash flows generated from operating activities 1,898,863 887,757
The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 60 Increasing Our Diversity, Enhancing Our Growth
Consolidated Cash Flow Statement For the financial year ended 31 December 2010
Note 2010 2009 Rp million Rp million
Cash flows from investing activities
Additions to property, plant and equipment (1,022,188) (1,544,691) Acquisition of a subsidiary company, net of cash acquired 32(i) – (8,432) Acquisition of non-controlling interests in subsidiary companies 19,32(ii) (41,500) (89,464) Proceeds from investments in repurchase receivables – 10,953 Additions to biological assets 14 (687,064) (742,363) Increase in plasma receivables 33(a) (128,025) (138,407) Proceeds from disposal of property and equipment 2,049 3,223 Proceeds from disposal of biological assets 1,261 1,381 Advances for projects and purchase of fixed assets (464,991) (239,807) Investment in unquoted shares (11,867) – Proceeds from divestment of interest in a subsidiary company 764,254 –
Net cash flows used in investing activities (1,588,071) (2,747,607)
Cash flows from financing activities Proceeds from interest-bearing loans and borrowings 4,226,803 4,063,016 Repayment of interest-bearing loans and borrowings (2,577,630) (3,641,342) Net (payments) /proceeds from amount due to related parties (27,152) 81,863 Dividend payments by subsidiaries to non-controlling interests (111,117) (108,234) Proceeds from dilution of shareholdings in a subsidiary company – 187,766 Proceeds from issuance of Bonds and Sukuk Ijarah – 721,699 Proceeds from sale of treasury shares 29(b) 173,435 – Increase in issued share capital in a subsidiary company 14,917 –
Net cash flows generated from financing activities 1,699,256 1,304,768
Net increase/ (decrease) in cash and cash equivalents 2,010,048 (555,082) Effect of changes in exchange rates on cash and cash equivalents (16,400) (50,839) Cash and cash equivalents at the beginning of the financial year 1,802,345 2,408,266
Cash and cash equivalents at the end of the financial year 24 3,795,993 1,802,345
The accompanying accounting policies and explanatory notes form an integral part of the financial statements. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 61
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
1. general
Indofood Agri Resources Ltd. (the “Company”) is a public limited liability company incorporated and domiciled in Singapore and is listed on the Singapore Exchange Securities Trading Limited (SGX-ST). With effect from 23 January 2007, the Company changed its name from CityAxis Holdings Limited to Indofood Agri Resources Ltd.. The registered office and principal place of business of the Company is located at 8 Eu Tong Sen Street, #16-96/97 The Central, Singapore 059818.
The Group is a vertically-integrated agribusiness group, with its principal activities comprising oil palm seed breeding, cultivation of oil palm plantations, production and refining of crude palm oil (“CPO”) and crude coconut oil (“CNO”), cultivation of rubber and sugar canes plantations and marketing and selling these end products. The Group is also involved in managing and cultivating small portions of cocoa, coconut and tea plantations, and marketing and selling the related products.
PT Indofood Sukses Makmur Tbk (“PT ISM”), incorporated in Indonesia, and First Pacific Company Limited, incorporated in Hong Kong, are the penultimate and ultimate parent company of the Group, respectively. The immediate holding company is Indofood Singapore Holdings Pte Ltd, incorporated in Singapore.
2. Basis of presentation of the consolidated financial statements
In January 2007, the Company completed the acquisition of the entire share capital of Indofood Oil & Fats Pte. Ltd. (“IOFPL”), a company incorporated and domiciled in Singapore pursuant to the sale and purchase agreement dated 23 August 2006. The purchase consideration of S$392,691,880 was satisfied by the allotment and issue of 9,982,000,000 new shares in the capital of the Company at S$0.03934 per share.
The acquisition of IOFPL has been accounted for in the consolidated financial statements of the Company as a reverse acquisition, as described in FRS103-Business Combinations. Hence, for accounting purposes, IOFPL is deemed to be the “acquirer” and the Company as the “legal parent”.
In the reverse acquisition, the cost of the business combination is deemed to have been incurred by IOFPL in the form of equity instruments issued to the owners of the Company. Accordingly, the deemed cost of acquisition has been determined at Rp99.8 billion using the fair value of S$1.25 per share on the 13,500,000 issued consolidated shares of the Company before the acquisition. The resulting goodwill of Rp76.3 billion, being the difference between the deemed cost of acquisition and fair value of the Company’s net assets at the reverse acquisition date, has been impaired in full and included in the statement of comprehensive income in Year 2007 as there are no future economic benefits attached to the goodwill.
The consolidated financial statements of the Company for the year ended 31 December 2010 and 2009 have been prepared and presented as a continuation of the business of IOFPL and its subsidiary companies. As such:
(a) the assets and liabilities of the IOFPL group have been recognised and measured in the consolidated financial statements at their pre-combination carrying amounts; (b) the retained earnings and other equity balances recognised in the consolidated financial statements are the retained earnings and other equity balances of IOFPL group immediately before the business combination; (c) the amount recognised as issued equity instruments in the consolidated financial statements has been determined by adding the deemed cost of the reverse acquisition to the issued equity of IOFPL immediately before the business combination. However, the equity structure appearing in the consolidated financial statements (i.e. the number and type of equity instruments issued) is the equity structure of the Company. 62 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies
3.1 Basis of preparation
The consolidated financial statements of the Group and the balance sheet of the Company has been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).
The financial statements have been prepared on the historical cost basis, except for (a) biological assets and available-for-sale investments which are stated at fair values; and (b) receivables and payables arising from future commodity contracts transactions which are determined based on the quoted market prices of the commodities.
The financial statements are presented in Indonesian Rupiah (“Rp”) and all values are rounded to the nearest million (Rp million) except when otherwise indicated.
The accounting policies have been consistently applied by the Company and the Group and are consistent with those used in the previous financial year, except for the changes stated in Note 3.2.
3.2 Changes in accounting policies
The accounting policies adopted are consistent with those of the previous financial year except in the current financial year, the Group has adopted all the new and revised standards and Interpretations of FRS (INT FRS) that are effective for annual periods beginning on or after 1 January 2010. The adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group and the Company except as disclosed below:
FRS 103 Business Combinations (revised) and FRS 27 Consolidated and Separate Financial Statements (revised)
The revised FRS 103 Business Combinations and FRS 27 Consolidated and Separate Financial Statements are applicable for annual periods beginning on or after 1 July 2009. As of 1 January 2010, the Group adopted both revised standards at the same time in accordance with their transitional provisions.
FRS 103 Business Combinations (revised)
The revised FRS 103 introduces a number of changes to the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. Changes in significant accounting policies resulting from the adoption of the revised FRS 103 include:
– Transaction costs would no longer be capitalised as part of the cost of acquisition but will be expensed immediately;
– Consideration contingent on future events are recognised at fair value on the acquisition date and any changes in the amount of consideration to be paid will no longer be adjusted against goodwill but recognised in the consolidated statement of comprehensive income;
– The Group elects for each acquisition of a business, to measure non-controlling interest at fair value, or at the non- controlling interest’s proportionate share of the acquiree’s identifiable net assets, and this impacts the amount of goodwill recognised; and
– When a business is acquired in stages, the previously held equity interests in the acquiree is remeasured to fair value at the acquisition date with any corresponding gain or loss recognised in the consolidated statement of comprehensive income, and this impacts the amount of goodwill recognised.
According to its transitional provisions, the revised FRS 103 has been applied prospectively. Assets and liabilities that arose from business combinations whose acquisition dates are before 1 January 2010 are not adjusted. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 63
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.2 Changes in accounting policies (cont’d)
FRS 27 Consolidated and Separate Financial Statements (revised)
Changes in significant accounting policies resulting from the adoption of the revised FRS 27 include:
– A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give rise to a gain or loss recognised in the consolidated statement of comprehensive income;
– Losses incurred by a subsidiary are allocated to the non-controlling interest even if the losses exceed the non-controlling interest in the subsidiary’s equity; and
– When control over a subsidiary is lost, any interest retained is measured at fair value with the corresponding gain or loss recognised in the consolidated statement of comprehensive income.
According to its transitional provisions, the revised FRS 27 has been applied prospectively, and does not impact the Group’s consolidated financial statements in respect of transactions with non-controlling interests, attribution of losses tonon- controlling interests and disposal of subsidiaries before 1 January 2010. The changes will affect future transactions with non-controlling interests.
3.3 Standards issued but not yet effective
The Group has not adopted the following standards and interpretations that have been issued but not yet effective:
Effective for annual periods beginning Description on or after
Amendment to FRS 32 Financial Instruments: Presentation - Classification of Rights Issues 1 February 2010 INT FRS 119 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 Revised FRS 24 Related Party Disclosures 1 January 2011 Amendments to INT FRS 114 Prepayments of a Minimum Funding Requirement 1 January 2011 INT FRS 115 Agreements for the Construction of Real Estate 1 January 2011 Amendments to FRS 107 Disclosures – Transfers of Financial Assets 1 July 2011 Amendments to FRS 12 Deferred Tax – Recovery of Underlying Assets 1 January 2012 Improvements to FRSs 2010 1 January 2011, unless otherwise stated
Except for the revised FRS 24, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of the revised FRS 24 is described below.
Revised FRS 24 Related Party Disclosures
The revised FRS 24 clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised FRS 24 expands the definition of a related party and would treat two entities as related to each other whenever a person (or a close member of that person’s family) or a third party has control or joint control over the entity, or has significant influence over the entity. The revised standard also introduces a partial exemption of disclosure requirements for government-related entities. The Group is currently determining the impact of the changes to the definition of a related party has on the disclosure of related party transaction. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in 2011. 64 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.4 functional and foreign currency
Management has determined the currency of the primary economic environment in which the Company operates, that is its functional currency, to be Indonesian Rupiah as the Company’s revenue and major expenses are largely influenced by Indonesian Rupiah.
Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the end of reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at the end of the reporting period are recognised in the statement of comprehensive income except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign subsidiaries, which are recognised initially in equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated statement of comprehensive income on disposal of the subsidiary.
The assets and liabilities of foreign operations are translated into Indonesian Rupiah at the rate of exchange ruling at the end of reporting period and their statement of comprehensive incomes are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the statement of comprehensive income.
3.5 Basis of consolidation
Business combinations from 1 January 2010
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the end of the reporting period. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Business combinations are accounted for by applying the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the services are received.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 39 either in statement of comprehensive income or as change to other comprehensive income. If the contingent consideration is classified as equity, it is not to be remeasured until it is finally settled within equity. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 65
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.5 Basis of consolidation (cont’d)
Business combinations from 1 January 2010 (cont’d)
In business combinations achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in statement of comprehensive income.
The Group elects for each individual business combination, whether non-controlling interest in the acquiree (if any) is recognised on the acquisition date at fair value, or at the non-controlling interest’s proportionate share of the acquiree identifiable net assets.
Any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of non- controlling interest in the acquiree (if any), and the fair value of the Group’s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities is recorded as goodwill. The accounting policy for goodwill is set out in Note 3.11(a). In instances where the latter amount exceeds the former, the excess is recognised as gain on bargain purchase in statement of comprehensive income on the acquisition date.
Business combinations before 1 January 2010
In comparison to the above mentioned requirements, the following differences applied:
Business combinations are accounted for by applying the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity.
When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.
Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent measurements to the contingent consideration affected goodwill.
3.6 Transactions with non-controlling interests
Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the Company, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated balance sheet, separately from equity attributable to owners of the Company.
Changes in the Company owners’ ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent. 66 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.7 Subsidiaries
A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors.
In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses.
3.8 property, plant and equipment
All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent to initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Such cost also includes the initial estimation of costs of dismantling and removing the item and restoring the sites of plants on which they are located, and the cost of replacing part of such property, plant and equipment when that cost is incurred.
Depreciation of an asset begins when it is available for use and is computed on a straight-line method over the estimated useful lives of the asset as follows:
• Buildings and improvements – 5 to 25 years • Plant and machinery – 4 to 20 years • Heavy equipment and transportation equipment – 3 to 10 years • Furniture, fixtures and office equipment – 4 to 10 years • Vessels – 20 years
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
The carrying amount of an item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from the derecognition of the asset is included in the consolidated statement of comprehensive income in the year the asset is derecognised.
The residual values, useful life and depreciation method are reviewed at each financial period to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.
The cost of construction-in-progress represents all costs incurred on the construction of the assets. The accumulated costs will be reclassified to the appropriate property, plant and equipment account when the construction is completed. No depreciation is provided on construction-in-progress.
Interest on borrowings to finance the construction of property, plant and equipment is capitalised during the period of time that is required to complete and prepare each asset for its intended use.
Repair and maintenance costs are taken to the consolidated statement of comprehensive income during the period in which they are incurred. The cost of major renovation and restoration is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group, and is depreciated over the remaining useful life of the asset.
Assets under finance lease are recognised at the lower of the present value of the minimum lease payments and the fair value of the asset. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 67
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.9 Biological assets
Biological assets, which primarily comprise oil palm, rubber and sugar cane plantations, are stated at fair value less estimated point-of-sale costs. Gain or loss arising on initial recognition of plantations at fair value less estimated point-of-sale costs and from the change in fair value less estimated point-of-sale costs of plantations at each reporting date are included in the consolidated statement of comprehensive income for the period in which they arise.
The fair value of the plantations is estimated by reference to independent professional valuations using the discounted cash flows of the underlying biological assets, mainly oil palm, rubber and sugar cane. The expected cash flows from the whole life cycle of the oil palm, rubber and sugar cane plantations are determined using the market prices of the estimated yields of the fresh fruit bunches (“FFB”), cup lump and sugar cane, respectively, net of maintenance and harvesting costs, and any costs required to bring the oil palm, rubber and sugar cane plantations to maturity. The estimated yields of the oil palm, rubber and sugar cane plantations are dependent on the age of the oil palm, rubber and sugar cane trees, the location of the plantations, soil type and infrastructure. The market price of the FFB is largely dependent on the prevailing market price of the crude palm oil and palm kernel oil.
Oil palm trees have an average life that ranges from 20 to 25 years; with the first 3 to 4 years as immature and the remaining years as mature.
Rubber trees have an average life that ranges from 20 to 25 years with first 5 to 6 years as immature and the remaining years as mature.
Sugar cane is ready for harvest in 12 months and can be harvested for an average of 4 years.
3.10 plasma receivables
Plasma receivables represent mainly the accumulated costs to develop plasma plantations which are currently being financed by banks and self-financed by certain subsidiaries. Upon obtaining financing from the bank, the said advances will be offset against the corresponding funds received from rural cooperatives unit (Koperasi Unit Desa or the “KUD”). For certain plasma plantations, the loans obtained from the bank are under the related subsidiaries’ (acting as nucleus companies) credit facility. When the development of plasma plantation is substantially completed and ready to be transferred or handed-over to plasma farmers, the corresponding investment credit from the bank is also transferred to the plasma farmers. Gain or loss resulting from the difference between the carrying value of the plasma receivables and the corresponding investment credit transferred to the plasma farmers is reflected in the consolidated statement of comprehensive income for the year.
An allowance for uncollectible plasma receivables is also provided based on the excess of accumulated development costs over the bank or Group’s funding or amounts agreed by the KUD.
3.11 Intangible assets
(a) Goodwill
Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units. 68 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.11 Intangible assets (cont’d)
(a) Goodwill (cont’d)
The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the consolidated statement of comprehensive income. Impairment losses recognised for goodwill are not reversed in subsequent periods.
Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained.
Goodwill and fair value adjustments arising on the acquisition of foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with the accounting policy set out in Note 3.4.
Goodwill and fair value adjustments which arose on acquisitions of foreign operation before 1 January 2005 are deemed to be assets and liabilities of the Company and are recorded in Rupiah at the rates prevailing at the date of acquisition.
(b) Other intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful livesand assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated statement of comprehensive income in the expense category consistent with the function of the intangible asset.
Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of comprehensive income when the asset is derecognised. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 69
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.11 Intangible assets (cont’d)
(c) Research and development costs
Research costs are expensed as incurred.
An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development.
Following initial recognition of the development costs as an intangible asset, it is carried at cost less accumulated amortisation and any accumulated losses. Amortisation of the intangible asset begins when development is complete and the asset is available for use. Development costs have a finite useful life and are amortised over the period of expected sales from the related project on a straight line basis.
3.12 Impairment of non-financial assets
The Group assesses at each annual reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.
An assessment is made at each annual reporting period as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss for an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in previously. Such reversal is recognised in the consolidated statement of comprehensive income.
3.13 financial assets
Financial assets are recognised on the consolidated balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. 70 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.13 financial assets (cont’d)
(a) Financial assets at fair value through profit or loss (cont’d)
Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value.Any gains or losses arising from changes in fair value of the financial assets are recognised in the consolidated statement of comprehensive income. Net gains or net losses on financial assets at fair value through profit or loss include exchange differences, interest and dividend income.
(b) Loans and receivables
Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated statement of comprehensive income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired.On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sumofthe consideration received and any cumulative gain or loss that had been recognised previously, will be recognised in the consolidated statement of comprehensive income.
All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned.
3.14 Derivative financial instruments
Future commodity contracts
The Group applies the provisions of FRS 39, “Financial Instruments: Recognition and Measurement”. FRS 39 requires that all of the following conditions to be met for a hedging relationship to qualify as hedge accounting: (a) at the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge; (b) the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk; (c) for cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss; (d) the effectiveness of the hedge can be reliably measured; and (e) the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.
The related receivables and payables arising from the above transaction are presented in the consolidated balance sheet as regular financial instruments and are carried at fair values based on the quoted market prices of the related commodity.
3.15 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and in banks, and short term deposits with an original maturity of 3 months or less at the time of placements and not restricted as to use.
Cash and cash equivalents carried in the consolidated balance sheet are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 3.13. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 71
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.16 Trade and other receivables
Trade and other receivables are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 3.13.
An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note 3.17.
3.17 Impairment of financial assets
The Group assesses at each end of the reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired.
(a) Financial assets carried at amortised cost
If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (that is the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the loss is recognised in the consolidated statement of comprehensive income.
In relation to trade receivables, impairment loss is recognised when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in the consolidated statement of comprehensive income.
(b) Financial assets carried at cost
If there is objective evidence that an impairment loss on financial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.
3.18 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using weighted-average method.
Cost incurred in bringing each product to its present location and condition is accounted for as follows:
Raw materials, goods in transit, spare parts and factory supplies – purchase cost; and
Finished goods and work in progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. 72 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.18 Inventories (cont’d)
Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
3.19 financial liabilities
Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.
Financial liabilities are recognised initially at fair value and in the case of financial liabilities other than derivatives, directly attributable transaction costs.
Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term.
Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value.Any gains or losses arising from changes in fair value of the financial liabilities are recognised in the consolidated statement of comprehensive income.
Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated statement of comprehensive income when the liabilities are derecognised, and through the amortisation process.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. Whenan existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of comprehensive income.
A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of comprehensive income.
3.20 provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. The provision is released if it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 73
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.21 Trade and other payables
Liabilities for trade and other amounts payable are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the consolidated statement of comprehensive income when the liabilities are derecognised as well as through the amortisation process.
3.22 Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated statement of comprehensive income when the liabilities are derecognised as well as through the amortisation process.
3.23 Borrowing costs
Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the qualifying asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
3.24 financial guarantee
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.
Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in the consolidated statement of comprehensive income over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to the consolidated statement of comprehensive income.
3.25 Employee benefits
(a) Defined contribution plans
The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed.
Certain subsidiaries in the Group have defined contribution retirement plans covering all of its qualified permanent employees. The Group’s contributions to the funds are computed at 10.0% and 7.0% of the basic pensionable income for staff and non-staff employees, respectively. The related liability arising from the difference between the cumulative funding since the establishment of the program and the cumulative pension costs charged to the consolidated statement of comprehensive income during the same period is recognised as employee benefits liabilities in the consolidated balance sheet. 74 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.25 Employee benefits (cont’d)
(b) Defined benefit plans
The Group also provides additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to qualified employees, as required under the Indonesian Labour Law No.13/2003 (the “Labour Law”). The said additional provisions, which are unfunded, are estimated using actuarial calculations based on the report prepared by an independent firm of actuaries.
Actuarial gains or losses are recognised in the consolidated statement of comprehensive income when the net cumulative unrecognised actuarial gains or losses at the end of the previous reporting year exceed 10.0% of the defined benefit obligation at that date. Such gains or losses in excess of the 10.0% corridor are amortised on a straight-line method over the expected average remaining service years of the covered employees.
Past service cost is recognised as an expense on a straight-line basis over the average period until the benefit becomes vested. To the extent that the benefit is already vested immediately following the introduction of, or changes to, the employee benefit program, the Group recognises past service cost immediately.
The related estimated liability for employee benefits is the aggregate of the present value of the defined benefit obligations at each reporting period and unrecognised actuarial gains and losses, less unrecognised past service cost.
3.26 Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of INT FRS 104.
(a) As lessee
Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the consolidated statement of comprehensive income. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.
Operating lease payments are recognised as an expense in the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.
(b) As lessor
Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 3.27(c). INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 75
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.26 Leases (cont’d)
(c) Prepaid land premiums and land use rights
From 1 January 2010
Land leases are considered finance leases since the arrangements transfer the substantial risks and rewards incidental to ownership of the land. As such, land leases are presented as part of property, plant and equipment.
Included as part of the land leases are the costs associated with the legal transfer or renewal of land right title, such as legal fees, land survey and re-measurement fees, taxes and other related expenses.
Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less accumulated amortisation. The land use rights are amortised on a straight-line basis.
Before 1 January 2010
Land leases are considered operating leases since the land has limited useful life. These land leases are presented as prepaid land premiums and deferred land right acquisition costs, which are amortized in a manner that reflects the benefits to be derived from them.
3.27 Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable, excluding discounts, rebates, and sales taxes or duty. The following specific recognition criteria must also be met before revenue is recognised:
(a) Sale of goods
Revenue from sales arising from physical delivery of palm based products, copra-based products, edible oils and other agricultural products is recognised when significant risks and rewards of ownership of goods are transferred to the buyer, which generally coincide with their delivery and acceptance.
(b) Interest income
Interest income is recognised using the effective interest method, unless collectability is in doubt.
(c) Rental and storage income
Rental and storage income is recognised on a straight-line basis over the lease terms.
(d) Dividend income
Dividend income is recognised when the right to receive payment is established. 76 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.28 Taxes
(a) Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period.
Current income taxes are recognised in the consolidated statement of comprehensive income except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
(b) Deferred tax
Deferred tax is provided using the liability method on temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all temporary differences, except:
– where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
– in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:
– where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
– in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at end of each reporting report and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the end of each reporting period. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 77
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.28 Taxes (cont’d)
(b) Deferred tax (cont’d)
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
(c) Value-added tax (“VAT”)
Revenues, expenses and assets are recognised net of the amount of VAT except:
– where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
– receivables and payables that are stated with the amount of VAT included.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated balance sheet.
3.29 Related parties
A party is considered to be related to the Group if:
(a) The party, directly or indirectly through one or more intermediaries,
(i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) The party is an associate;
(c) The party is a jointly-controlled entity;
(d) The party is a member of the key management personnel of the Group or its parent;
(e) The party is a close member of the family of any individual referred to in (a) or (d); or
(f) The party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) The party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group. 78 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
3. Summary of significant accounting policies (cont’d)
3.30 Segment reporting
For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 38, including the factors used to identify the reportable segments and the measurement basis of segment information.
3.31 Share capital and share issue expenses
Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of ordinary shares are deducted against share capital.
3.32 Treasury shares
The Group’s own equity instruments, which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the consolidated statement of comprehensive income on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount of treasury shares and the consideration received is recognised directly in equity.
3.33 Contingencies
A contingent liability is:
(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the Group; or
(b) a present obligation that arises from past events but is not recognised because:
(i) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
(ii) The amount of the obligation cannot be measured with sufficient reliability.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.
Contingent liabilities and assets are not recognised on the balance sheet of the Group, except for contingent liabilities assumed in a business combination that are present obligations and which the fair values can be reliably determined.
4. Significant accounting estimates and judgements
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of each reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 79
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
4. Significant accounting estimates and judgements (cont’d)
4.1 Judgements made in applying accounting policies
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which has the most significant effect on the amounts recognised in the consolidated financial statements:
(a) Classification of financial assets and financial liabilities
The Group determines the classification of certain of assets and liabilities as financial assets and financial liabilities by judging if they meet the definition set out in FRS 32. Accordingly, the financial assets and financial liabilities are accounted for in accordance with the Group’s accounting policies set out in Note 3.13 and Note 3.19 respectively.
(b) Purchase price allocation and goodwill impairment
Purchase accounting requires extensive use of accounting estimates to allocate the purchase price to the fair market values of the assets and liabilities purchased, including intangible assets and contingent liabilities. Certain business acquisitions of the Group have resulted in goodwill. Under FRS 103, such goodwill is not amortised and is subject to a periodic impairment testing. The carrying amount of the Group’s goodwill as at 31 December 2010 is Rp3,155.8 billion (2009: Rp3,155.8 billion). Further details are disclosed in Note 16.
In determining the fair values of biological assets at the date of business combination, which require the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Group to make estimates and assumptions that can materially affect its consolidated financial information. Future events could cause the Group to conclude that biological assets are impaired. The preparation of estimated future cash flows involves significant estimations. While the Group believes that its assumptions are appropriate and reasonable, significant changes in its assumptions may materially affect its assessment of recoverable values and may lead to impairment charge in the future.
Impairment review is performed when certain impairment indication is present. In the case of goodwill, such assets are subject to annual impairment test and whenever there is an indication that such asset may be impaired. Management has to use its judgement in estimating the recoverable value and determining if there is any indication of impairment.
(c) Allowance for doubtful debts
The Group evaluates specific accounts where it has information that certain customers are unable to meet their financial obligations. In these cases, the Group uses judgement, based on the best available facts and circumstances, including but not limited to, the length of its relationship with the customer and the customer’s current credit status based on third party credit reports and known market factors, to record specific allowance against amount due from such customers to reduce its receivable to the amount the Group expects to collect. These specific allowances are re-evaluated and adjusted as additional information received affects the amounts of allowance for doubtful debts. The carrying amount of the Group’s trade receivables before allowance for doubtful debts as at 31 December 2010 is Rp741.9 billion (2009: Rp553.3 billion). Further details are disclosed in Note 23.
(d) Allowance for uncollectible plasma receivables
The Group evaluates the excess of accumulated development costs over the bank’s and Group’s funding on the amount agreed by the plasma farmers. In these cases, the Group uses judgement, based on available facts and circumstances, to record allowance for uncollectible plasma receivables. These provisions are re-evaluated and adjusted as additional information received. The net carrying amount of the Group’s plasma receivables as of 31 December 2010 and 2009 is Rp600.7 billion and Rp456.8 billion, respectively. Further details are disclosed in Note 33(a). 80 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
4. Significant accounting estimates and judgements (cont’d)
4.1 Judgements made in applying accounting policies (cont’d)
(e) Allowance for unrecoverable advances for purchase of land
The Group evaluates the sufficiency of allowance for advances for purchase of land based on its assessment over the plot of land rights that the related titles of ownership cannot be transferred to the Group. The net carrying amount of the Group’s advance for purchase of land as of 31 December 2010 is Rp107.0 billion (2009: Rp158.5 billion).
4.2 Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of each reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Pension and employee benefits
The determination of the Group’s obligations and cost for pension and employee benefits liabilities is dependent on its selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions include among others, discount rates, future annual salary increase, annual employee turnover rate, disability rate, retirement age and mortality rate. Actual results that differ from the Group’s assumptions are recognised immediately in the consolidated statement of comprehensive income as and when they occur. While the Group believes that its assumptions are reasonable and appropriate, significant differences in the Group’s actual experiences or significant changes in the Group’s assumptions may materially affect its estimated liabilities for pension and employee benefits and net employee benefits expense. The carrying amount of the Group’s employee benefits liabilities as at 31 December 2010 is Rp574.0 billion (2009: Rp443.0 billion). Further details are given in Note 28.
(b) Depreciation of property, plant and equipment
The cost of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment to be within 3 to 25 years. These are common life expectancies applied in the industries where the Group conducts its businesses. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, and therefore future depreciation charges could be revised. The net carrying amount of the Group’s property, plant and equipment as at 31 December 2010 is Rp6,791.4 billion (2009: Rp5,696.7 billion). Further details are disclosed in Note 15.
(c) Biological assets
The Group carries its oil palm, rubber and sugar cane plantations and other smaller plantations at fair value less estimated point-of-sale costs, which require extensive use of accounting estimates. Significant components of fair value measurement were determined using assumptions including average lives of plantations, period of being immature and mature plantations, yield per hectare and annual discount rates. The amount of changes in fair values would differ if there are changes to the assumptions used. Any changes in fair values of these plantations would affect the Group’s consolidated statement of comprehensive income and equity. The carrying amount of the Group’s biological assets as at 31 December 2010 is Rp10,453.1 billion (2009: Rp9,486.1 billion). Further details are disclosed in Note 14. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 81
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
4. Significant accounting estimates and judgements (cont’d)
4.2 Key sources of estimation uncertainty (cont’d)
(d) Financial instruments
The Group carries certain financial assets and liabilities at fair values, which requires extensive use of accounting estimates. While significant components of fair value measurement were determined using verifiable objective evidences, the amount of changes in fair values would differ if the Group utilised a different valuation methodology. Any change in fair values of these financial assets and liabilities would directly affect the Group’s consolidated statement of comprehensive income. The carrying amount of net receivables under future commodity contracts carried at fair values as at 31 December 2010 is Rp85.2 billion (2009: Rp104.6 billion). The carrying amount of net payables under future commodity contracts carried at fair values as at 31 December 2010 is Rp85.0 billion (2009: Rp104.9 billion). Further details are disclosed in Note 33(b).
(e) Income tax
Significant judgment is involved in determining provision for income tax. There are certain transactions and computation for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected income tax issues based on estimates of whether additional income taxes will be due. Where the final income tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred income tax in the year in which such decision is made by the taxation authority. The carrying amount of the Group’s tax payables as at 31 December 2010 is Rp102.4 billion (2009: Rp106.2 billion).
(f) Allowance for decline in market value of inventories and obsolescence of inventories
Allowance for decline in market value of inventories and obsolescence of inventories is estimated based on the best available facts and circumstances, including but not limited to, the inventories’ own physical conditions, their market selling prices, estimated costs of completion and estimated costs to be incurred for their sales. The provisions are re- evaluated and adjusted as additional information received affects the amount estimated. The carrying amount of the Group’s inventories as at 31 December 2010 is Rp1,321.2 billion (2009: Rp1,082.6 billion). Further details are disclosed in Note 22.
(g) Deferred tax assets
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management estimates are required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The carrying amount of the Group’s deferred tax assets as at 31 December 2010 is Rp363.1 billion (2009: Rp294.3 billion).
5. Revenue
Revenue comprise of net sales of palm oil based products, edible oils, oil palm seeds and other agricultural products.
During the year ended 31 December 2010, revenue from sales of edible oils and fats products to PT Indofood Sukses Makmur Tbk and its subsidiaries amounting to Rp1,399.5 billion or 14.76% of total consolidated revenue (2009 : Rp1,217.8 billion or 13.47%). 82 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
6. Cost of sales
Group 2010 2009 Rp million Rp million
Raw materials used 2,432,628 2,839,744 Harvesting, upkeep and cultivation cost 1,294,167 1,197,926 Manufacturing and other overhead expenses 2,070,618 1,792,611 Changes in work in-process and finished goods inventories (63,608) (15,319)
5,733,805 5,814,962
During the years ended 31 December, 2010 and 2009, there were no purchases made from any single supplier with a cumulative amount exceeding 10% of the consolidated revenue.
7. Other operating income
Group Note 2010 2009 Rp million Rp million
Sundry sales of oil palm seedlings 12,381 9,490 Net changes in provision for decline in market value and obsolescence of inventories 22 7,988 10,343 Gains from dilution of shareholding in a subsidiary - 56,286 Others 13,597 71,053
Total 33,966 147,172
8. Other operating expenses
Group Note 2010 2009 Rp million Rp million
Provision for uncollectible plasma receivables 33(a) 24,599 25,269 Loss /(gain) arising from changes in fair value of plasma receivables 33(a) 5,854 (886) Write-off of property and equipment 2,177 1,667 Write-off of plasma receivables 33(a) 26,459 26,602 Loss on future commodity contract transactions 268 1,137 (Gain)/loss on disposal of property and equipment (1,100) 918 Amortisation of deferred charges 11,467 – Changes in provision for asset dismantling costs 27 2,347 3,219 Loss on disposal of biological assets 1,579 5,146 Others 60,546 24,912
134,196 87,984 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 83
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
9. profit from operations
Group Note 2010 2009 Rp million Rp million
(i) The following items have been included in arriving at profit from operations:
Depreciation and amortisation - Depreciation of property, plant and equipment 15 408,087 342,009 - Amortisation of other non-current assets 13,231 996 Research and development costs 35,499 32,118 Operating lease rentals 12,397 14,726 Allowance / (write-back) of doubtful debts 23 304 (165)
(ii) Employee benefits during the financial year included:
- Wages and salaries 775,181 707,507 - Provision for employee benefits 28 174,077 119,266 - Contribution to defined contribution pension plan 13,053 13,016 - Training and education 25,862 21,556
988,173 861,345
10. financial income
Group 2010 2009 Rp million Rp million
Interest income: - Current accounts and short term deposits 44,566 46,384 - Plasma receivables 17,337 19,639 - Repurchase receivables – 324 - Others 1 283
Total 61,904 66,630
11. financial expenses
Group 2010 2009 Rp million Rp million
Interest expense: - Bank loans 319,502 418,231 - Bank charges 20,550 17,843 - Bonds payable 53,457 4,366 - Finance leases 568 1,645 - Others 6,387 1,186
Total 400,464 443,271 84 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
12. Income tax expense
The major components of income tax expense for the years ended 31 December 2010 and 2009 are as follows:
Group Note 2010 2009 Rp million Rp million
Statement of comprehensive income: Current income tax - Current income taxation 756,017 714,634 - Under provision in respect of previous years – 255 756,017 714,889 Deferred income tax movements: Property, plant and equipment (18,722) (13,248) Biological assets 114,151 234,201 Allowance for impairment and fair value adjustments of plasma receivables (7,613) (6,847) Employee benefits liability (31,879) (23,917) Deferred inter-company profits (30,890) 346 Tax loss carry forward (32,273) (71,499) Effect of tax rate changes – (5,103) Others (63) 5,476 Net deferred tax (benefit) /expense reported in the consolidated statement of comprehensive income (7,289) 119,409
Income tax expense recognised in the statement of comprehensive income 748,728 834,298
A reconciliation between the profit before tax multiplied by the applicable corporate tax rate and the income tax expense is as follows:
Group Note 2010 2009 Rp million Rp million
Profit before tax as per consolidated statement of comprehensive income 2,654,883 2,887,560
Tax expense at the applicable tax rates 656,174 800,849 Non-taxable income (52,889) (118,042) Non-deductible expenses 117,750 138,104 Effect of tax rate changes – (5,103) Underprovision in respect of prior years 27,693 18,490
Income tax expense recognised in the statement of comprehensive income 748,728 834,298
Companies in Indonesia and Singapore are generally subject to progressive tax rates up to a maximum of 25% and 17% (2009: 28% and 17%) respectively.
The effect of tax rate changes is due to the reduction in Indonesia tax rates from 30% in 2008 to 28% in 2009, and 25% for 2010 onwards. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 85
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
13. Earnings per share
Basic earnings per share are calculated by dividing profit for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing profit for the year that is attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the profit and share data used in the computation of basic and diluted earnings per share for the years ended 31 December:
Group 2010 2009 Rp million Rp million
Profit attributable to owners of the parent 1,402,013 1,526,829
No. of shares No. of shares
Weighted average number of ordinary shares* 1,440,065,022 1,438,782,830
There were no dilutive potential ordinary shares as at 31 December 2010 and 2009.
* The weighted average number of shares takes into account the weighted average effect of changes in treasury shares transactions during the year.
14. Biological assets
Biological assets primarily comprise oil palm, rubber and sugar cane plantations. The following shows the movement in their carrying value:
Group Note 2010 2009 Rp million Rp million
At fair value
At 1 January 9,486,096 8,152,865 Additions 687,064 742,363 Additions from acquired subsidiaries 32(i) – 612 Disposal of biological assets (2,840) (6,527) Reclassification from property, plant and equipment and other non-current assets (26,507) (25,787) 10,143,813 8,863,526 Gain arising from changes in fair value of biological assets 309,269 622,570
At 31 December 10,453,082 9,486,096
The fair value of biological assets are determined by an independent valuer using the discounted future cash flows of the underlying plantations.
Mature oil palm trees produce Fresh Fruit Bunches (“FFB”), which are used to produce CPO and Palm Kernel. The expected future cash flows of the oil palm plantations are determined using the forecast market price of FFB, which is largely dependent on the projected selling prices of CPO and Palm Kernel Oil (“PKO”) in the market. 86 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
14. Biological assets (cont’d)
Significant assumptions made in determining the fair values of the oil palm plantations are as follows:
(a) oil palm trees have an average life that ranges from 20 to 25 years, with the first 3 to 4 years as immature and the remaining years as mature; (b) yield per hectare of oil palm trees is determined by reference to guidelines issued by the Indonesian Oil Palm Research Institute (“Pusat Penelitian Kelapa Sawit”) in Indonesia, which varies with the average age of oil palm trees, as well as internal standards and results of internal assessments of other relevant factors; (c) the discount rate used in 2010 is 18.24% (2009: 19.22%). Such a discount rate represents the asset specific rate for the Group’s oil palm plantation operations which is applied in the discounted future cash flows calculation; and (d) the projected selling price of CPO over the projection period is based on consensus of reputable independent forecasting service firms for the short-term period and World Bank forecasts for the remaining projection period (2009: World Bank forecasts).
Mature rubber trees produce cup lump. The expected future cash flows of the rubber plantations are determined using the forecast market price of cup lump which are based on the projected selling price of Rubber Smoke Sheet 1 (“RSS1”) and other rubber products of the Group.
Significant assumptions made in determining the fair values of the rubber plantations are as follows:
(a) rubber trees have an average life that ranges from 20 to 25 years, with the first 5 to 6 years as immature and the remaining years as mature; (b) discount rate used in 2010 is 17.68% (2009: 18.59%). Such a discount rate represents the asset specific rate for the Group’s rubber plantations operations which is applied in the discounted future cash flows calculation; and (c) the projected selling price of RSS1 and other rubber products of the Group for 2010 and 2009 over the projection period is based on actual historical selling prices of the Group and World Bank forecasts.
The expected future cash flows of the sugar cane plantations are determined using the forecast market price of sugar cane which are based on the projected selling price of sugar (2009: sugar cane) in 2010.
Significant assumptions made in determining the fair values of the sugar cane plantations are as follows:
(a) sugar cane is ready for harvest in 12 months and can be harvested for an average for 4 years; (b) discount rate used in 2010 is 11.72% (2009: 14.23%). Such discount rate represent the asset specific rate for the Group’s sugar cane plantations operation which are applied in the discounted future cash flows calculation; and (c) the projected selling price of sugar (2009: sugar cane) in 2010 and 2009 over the projection period is based on actual historical selling prices of the Group and World Bank forecasts.
During 2010, the Group’s oil palm plantations produced approximately 2.6 million tonnes (2009: 2.6 million tonnes) of FFB. The selling prices per tonne for those FFB ranged between Rp1.2 million to Rp2.0 million (2009: Rp0.6 million to Rp1.6 million).
During 2010, the Group’s rubber plantations produced about 25.1 thousand tonnes (2009: 25.7 thousand tonnes) of cup lump. The selling prices per tonne ranged between Rp13.5 million to Rp 21.0 million (2009: Rp7.0 million to Rp14.5 million).
During 2010, the Group’s sugar cane plantations produced about 429.8 thousand tonnes (2009: 295.9 thousand tonnes) of sugar cane. The selling prices per tonne was approximately Rp0.4 million (2009: Rp0.4 million). INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 87
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
14. Biological assets (cont’d)
An analysis for the areas of mature and immature plantations of each group of biological assets is as follows:
2010 2009 Mature (Ha) Immature (Ha) Mature (Ha) Immature (Ha)
Oil palm 155,400 49,664 132,560 61,053 Rubber 17,556 4,472 17,263 4,475 Others 11,983 3,032 6,995 5,375
Capitalisation of borrowing costs
During the year ended 31 December 2010, borrowing costs capitalised to biological assets of the Group in the course of construction amounted to Rp64.0 billion (2009: Rp77.2 billion) based on the specific identification of the related borrowings.
Assets pledged as security
Biological assets with a carrying value of Rp474.7 billion (2009: Rp557.2 billion) as at 31 December 2010 were used as collateral for bank facilities granted to the Group (Note 26).
15. property, plant and equipment
Heavy Buildings equipment Furniture, and and trans- fixtures Land use improve- Plant and portation and office rights ments machinery equipment equipment Total Rp million Rp million Rp million Rp million Rp million Rp million
Group
Cost At 31 December 2008 and 1 January 2009: - as previously reported – 1,510,137 1,910,354 396,691 131,795 3,948,977 - effect of adoption of FRS 17 1,603,053 – – – – 1,603,053 - as restated 1,603,053 1,510,137 1,910,354 396,691 131,795 5,552,030 Additions 53,378 243,044 1,158,780 131,081 28,634 1,614,917 Additions from acquired subsidiaries 324 – – – – 324 Reclassification 71,048 19,955 (24,731) 794 198 67,264 Disposals and write-off – (3,286) (11,440) (9,106) (3,982) (27,814) At 31 December 2009 and 1 January 2010 - as previously reported – 1,769,850 3,032,963 519,460 156,645 5,478,918 - effect of adoption of FRS 17 1,727,803 – – – – 1,727,803 - as restated 1,727,803 1,769,850 3,032,963 519,460 156,645 7,206,721 Additions 57,804 670,926 455,772 314,700 24,962 1,524,164 Reclassification - (62,786) 58,136 1,959 175 (2,516) Disposals and write-off - (1,098) (8,612) (1,667) (1,002) (12,379) At 31 December 2010 1,785,607 2,376,892 3,538,259 834,452 180,780 8,715,990 88 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
15. property, plant and equipment (cont’d)
Heavy Buildings equipment Furniture, and and trans- fixtures Land use improve- Plant and portation and office rights ments machinery equipment equipment Total Rp million Rp million Rp million Rp million Rp million Rp million
Group
Accumulated depreciation At 31 December 2008 and 1 January 2009 - as previously reported – 185,598 550,498 184,638 64,555 985,289 - effect of adoption of FRS 17 190,312 – – – – 190,312 - as restated 190,312 185,598 550,498 184,638 64,555 1,175,601 Depreciation charge for the year 62,633 64,571 129,955 64,958 19,892 342,009 Reclassification 1,589 3,439 3,796 4,231 1,336 14,391 Disposals and write-off – (1,440) (10,132) (7,590) (2,844) (22,006) At 31 December 2009 and 1 January 2010: - as previously reported – 252,168 674,117 246,237 82,939 1,255,461 - effect of adoption of FRS 17 254,534 – – – – 254,534 - as restated 254,534 252,168 674,117 246,237 82,939 1,509,995 Depreciation charge for the year 57,321 75,154 153,951 96,844 24,817 408,087 Reclassification 1,931 7,401 9,967 (3,095) (478) 15,726 Disposals and write-off – (316) (6,601) (1,593) (743) (9,253)
At 31 December 2010 313,786 334,407 831,434 338,393 106,535 1,924,555
Net carrying amount At 31 December 2008: - as previously reported – 1,324,539 1,359,856 212,053 67,240 2,963,688 - effect of adoption of FRS 17 1,412,741 – – – – 1,412,741 - as restated 1,412,741 1,324,539 1,359,856 212,053 67,240 4,376,429
At 31 December 2009: - as previously reported – 1,517,682 2,358,846 273,223 73,706 4,223,457 - effect of adoption of FRS 17 1,473,269 – – – – 1,473,269 - as restated 1,473,269 1,517,682 2,358,846 273,223 73,706 5,696,726
At 31 December 2010 1,471,821 2,042,485 2,706,825 496,059 74,245 6,791,435 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 89
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
15. property, plant and equipment (cont’d)
Furniture, fixtures Buildings and and office improvements equipment Total Rp million Rp million Rp million
Company
Cost At 1 January 2009 74,242 315 74,557 Additions – 21 21 Disposals and write-off (193) (32) (225) At 31 December 2009 and 1 January 2010 74,049 304 74,353 Additions – 20 20 Disposals and write-off – – –
At 31 December 2010 74,049 324 74,373
Accumulated depreciation At 1 January 2009 132 153 285 Additions 4,137 103 4,240 Disposals and write-off (149) (24) (173) At 31 December 2009 and 1 January 2010 4,120 232 4,352 Additions 4,120 57 4,177 Disposals and write-off – – –
At 31 December 2010 8,240 289 8,529
Net carrying amount At 31 December 2009 69,929 72 70,001
At 31 December 2010 65,809 35 65,844
Assets under construction
Property, plant and equipment of the Group at 31 December 2010 include expenditure for building and machinery in the course of construction amounting to Rp2,052.2 billion (2009: Rp1,626.9 billion).
Capitalisation of borrowing costs
During the year ended 31 December 2010, borrowing costs capitalised to property, plant and equipment of the Group in the course of construction amounted to Rp119.0 billion (2009: Rp75.0 billion) based on the specific identification of the related borrowings.
Assets pledged as security
Property, plant and equipment with a net book value of Rp156.8 billion (2009: Rp378.7 billion) are pledged to secure the borrowings of the Group as at 31 December 2010 (Note 26). 90 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
15. property, plant and equipment (cont’d)
Assets held under finance leases
Land Use Rights
The Group has land use rights with terms ranging from 10 to 44 years. Under the lease terms, management evaluated that the risk and rewards of the land were substantially transferred to the Group and therefore such lease arrangements were considered as finance leases and depreciated in a manner that reflects the benefits to be derived from them.
Transportation Equipment
As of 31 December 2010, the carrying amount of transportation equipment held under finance lease is Rp8.1 billion (2009: Rp19.9 billion).
16. goodwill
Group Note 2010 2009 Rp million Rp million
At 1 January 3,155,786 2,994,523 Acquisition of new subsidiaries 32(i) – 8,319 Acquisition of non-controlling interests in subsidiaries 32(ii) – 152,944
At 31 December 3,155,786 3,155,786
Goodwill arising from business combination was allocated to the following cash-generating units for impairment testing:
Plantation estates of Lonsum 2,909,757 2,909,757 Plantation estates of PT GS 8,055 8,055 Plantation estates of PT MPI 2,395 2,395 Plantation estates of PT SBN 234 234 Plantation estates of PT KGP 29,140 29,140 Plantation estates of PT CNIS 7,712 7,712 Plantation estates of PT LPI 37,230 37,230 Plantation estates of PT SAIN 113,936 113,936 Plantation estates of PT RAP 3,388 3,388 Plantation estates of PT JS 1,533 1,533 Plantation estates of PT MISP 34,087 34,087 Plantation estates of PT IBP 8,319 8,319
Total 3,155,786 3,155,786 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 91
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
16. goodwill (cont’d)
No other impairment loss was recognised for the year ended 31 December 2010 and 2009 as the recoverable amounts of the goodwill stated above were in excess of their respective carrying values. The summary of impairment testing on the above- mentioned goodwill is as follows:
Except for goodwill allocated to the plantation estates of Lonsum, the recoverable value of the goodwill of all other plantation estates as at 31 December 2010 was determined based on fair value less costs to sell (“FVLCTS”), using discounted cash flow method. The recoverable value of the goodwill allocated to the plantation estates of Lonsum had been determined based on value-in-use calculations. The following key assumptions had been used:
Goodwill as at Discount rate Terminal Cash generating units 31 December 2010 (pre-tax) growth rate Rp million
Plantation estates of Lonsum 2,909,757 16.66% 6.50% Plantation estates of PT GS 8,055 16.38% 6.50% Plantation estates of PT MPI 2,395 16.38% 6.50% Plantation estates of PT SBN 234 16.38% 6.50% Plantation estates of PT KGP 29,140 16.38% 6.50% Plantation estates of PT CNIS 7,712 16.38% 6.50% Plantation estates of PT LPI 37,230 15.35% 6.50% Plantation estates of PT SAIN 113,936 16.38% 6.50% Plantation estates of PT RAP 3,388 16.38% 6.50% Plantation estates of PT JS 1,533 16.38% 6.50% Plantation estates of PT MISP 34,087 16.38% 6.50% Plantation estates of PT IBP 8,319 16.38% 6.50%
Total 3,155,786
The recoverable value calculation of the above CGU applied a discounted cash flow model using cash flow projections covering a period of 10 years for plantation estates. The projected price of the CPO is based on the consensus of reputable independent forecasting service firms for the short-term period and the World Bank forecasts for the remaining projection period (2009: the World Bank forecasts); the projected selling price of rubber (RSS1 and other rubber products of the Group) over the projection period is based on actual historical selling prices of the Group and World Bank forecasts (2009: actual historical selling prices of the Group and World Bank forecasts); and, the sugar price used in the projection is based on actual historical selling prices of the Group and World Bank forecasts (2009: actual historical selling prices of the Group). The cash flows beyond the projected periods are extrapolated using the estimated terminal growth rate indicated above. The discount rate applied to the cash flow projections is derived from the weighted average cost of capital of the respective CGUs. The terminal growth rate used does not exceed the long-term average growth rate of the industry and country in which the entities operate.
Changes to the assumptions used by the management to determine the recoverable value, in particular the discount and terminal growth rate, can have significant impact on the results of the assessment. Management is of the opinion that no reasonably possible change in any of the key assumptions stated above would cause the carrying amount of the goodwill for each of the CGU to materially exceed their recoverable value.
17. Claims for tax refund
Claims for tax refund represent (a) advance tax payment made by each entity within the Group which is creditable against their respective corporate income tax payable; and (b) tax assessments being appealed to the taxation authorities. 92 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
18. Deferred taxation
Consolidated balance sheet Note 2010 2009 Rp million Rp million
Deferred tax assets Property, plant and equipment (24,731) (23,296) Biological assets 46,978 53,847 Allowance for impairment and fair value adjustments of plasma receivables 26,709 20,131 Allowance for employees benefit expenses 8,366 7,161 Allowance for decline in market values and obsolescence of inventories 2,602 5,062 Employee benefits liabilities 53,975 41,956 Deferred inter-company profits 65,015 38,695 Tax loss carry forward 187,571 155,367 Others (3,336) (4,596)
Net deferred tax assets reported in the consolidated balance sheet 363,149 294,327
Deferred tax liabilities Property, plant and equipment (382,575) (401,923) Biological assets (1,593,226) (1,485,943) Allowance for impairment and fair value adjustments of plasma receivables 8,033 7,897 Allowance for employees benefit expenses 38,838 36,839 Allowance for unrecoverable advances for purchases of land 11,000 11,000 Employee benefits liabilities 87,756 67,896 Deferred inter-company profits Tax loss carry forward Others 4,650 241
Net deferred tax liabilities reported in the consolidated balance sheet (1,825,524) (1,763,993)
For purposes of presentation in the consolidated balance sheet, the asset or liability classification of the deferred tax effect of each of the above temporary differences is determined based on the net deferred tax position (assets or liabilities) on a per entity basis.
Deferred tax assets and liabilities cover the future tax consequences attributable to differences between the financial and tax reporting bases of assets and liabilities and the benefits of tax loss carry forwards.
At the end of reporting period, the Group has tax losses of approximately Rp995.5 billion (2009: Rp749.0 billion) that are available for offset against future taxable profits. The related deferred tax assets of Rp61.3 billion (2009: Rp32.0 billion) attributable to such tax losses was not recognised as the recoverability was considered not probable.
A deferred tax liability of approximately Rp481.2 billion (2009: Rp396.3 billion) that could arise upon the distribution of profits of certain subsidiary companies has not been provided for as at 31 December 2010 as the distribution of the profits is controlled and there is currently no intention for the profits to be remitted into Singapore. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 93
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
19. Investment in subsidiary companies
Company 2010 2009 Rp million Rp million
Unquoted equity shares, at cost 7,383,633 8,487,971
Details of acquisition of subsidiaries are included in Note 32.
The subsidiary companies as at 31 December are:
Country of Percentage of Name of subsidiaries incorporation equity held Principal activities % 2010 2009
Name (Abbreviated name) Denotes
Held by the Company
Indofood Oil & Fats Pte Ltd Singapore 100.00 100.00 Investment holding (IOFPL) ①
PT PP London Sumatra Indonesia Tbk Indonesia – 8.03 Business of breeding, planting, milling (Lonsum) ② and selling of oil palm products, rubber and other crops
Held by Indofood Oil & Fats Pte Ltd
PT Salim Ivomas Pratama Indonesia 90.00 90.00 Ownership of oil palm plantations, (PT SIMP) ② mills and production of cooking oil, margarine, fats, and other related products
Held by PT Salim Ivomas Pratama
IndoInternational Green Energy Singapore 54.00 – Investment holding Resources Pte. Ltd. (IGER) ①
PT Indoagri Inti Plantation Indonesia 89.10 89.10 Investment holding, management (PT IIP) ② services and transportation
Silveron Investments Limited Mauritius 90.00 90.00 Investment holding (SIL) ③
PT Kebun Mandiri Sejahtera Indonesia 84.10 84.10 Ownership of rubber and oil palm (PT KMS) ③ plantations
PT Manggala Batama Perdana Indonesia 90.00 90.00 Non-operating (PT MBP) * 94 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
19. Investment in subsidiary companies (cont’d)
Country of Percentage of Name of subsidiaries incorporation equity held Principal activities % 2010 2009
Held by PT Salim Ivomas Pratama (cont’d)
PT Sarana Inti Pratama Indonesia 90.00 90.00 Investment, research and management (PT SAIN) ③ and technical services, oil palm seed breeding, and ownership of oil palm plantations
PT Mentari Subur Abadi Indonesia 26.80 54.00 Investment and ownership of oil palm (PT MSA) ③ plantations
PT Mega Citra Perdana Indonesia 26.74 54.00 Investment holding (PT MCP) ④
PT Swadaya Bhakti Negaramas Indonesia 26.85 54.00 Ownership of oil palm plantations (PT SBN) ③
PT Lajuperdana Indah Indonesia 26.65 54.00 Ownership of sugar cane plantations and (PT LPI) ② sugar production factory
PT Mitra Inti Sejati Plantation Indonesia 90.00 90.00 Ownership of oil palm plantations and (PT MISP) ③ mill
PT PP London Sumatra Indonesia Tbk Indonesia 53.53 50.76 Business of breeding, planting, milling (Lonsum) ② and selling of oil palm products, rubber and other crops
PT Cakra Alam Makmur Indonesia 90.00 90.00 Ownership of bulking facilities (PT CAM) ③
PT Hijaupertiwi Indah Plantations Indonesia 90.00 90.00 Ownership of oil palm plantations (PT HPIP) ③
PT Cangkul Bumisubur Indonesia 90.00 90.00 Ownership of oil palm plantations (PT CBS) ③
PT Samudera Sejahtera Pratama Indonesia 90.00 90.00 Transportation service (PT SSP) ③
Held by IndoInternational Green Energy Resources Pte. Ltd.
PT Mentari Subur Abadi Indonesia 27.20 – Investment and ownership of oil palm (PT MSA) ③ plantations
PT Mega Citra Perdana Indonesia 27.26 – Investment holding (PT MCP) ④ INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 95
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
19. Investment in subsidiary companies (cont’d)
Country of Percentage of Name of subsidiaries incorporation equity held Principal activities % 2010 2009
Held by IndoInternational Green Energy Resources Pte. Ltd. (cont’d)
PT Swadaya Bhakti Negaramas Indonesia 27.15 – Ownership of oil palm plantations (PT SBN) ③
PT Lajuperdana Indah Indonesia 27.35 – Ownership of sugar cane plantations and (PT LPI) ② sugar production factory
Held by PT Indoagri Inti Plantation
PT Gunung Mas Raya Indonesia 88.21 88.21 Ownership of oil palm plantations and (PT GMR) ② mill
PT Indriplant Indonesia 88.21 88.21 Ownership of oil palm plantations and (PT IP) ② mill
PT Serikat Putra Indonesia 88.21 88.21 Ownership of oil palm plantations and (PT SP) ② mill
PT Cibaliung Tunggal Plantations Indonesia 88.21 88.21 Ownership of oil palm plantations (PT CTP) ②
Held by PT Serikat Putra
PT Intimegah Bestari Pertiwi Indonesia 88.21 88.21 Ownership of oil palm plantations (PT IBP) ③
Held by Silveron Investments Limited
Asian Synergies Limited British Virgin 90.00 90.00 Investment holding (ASL) ③ Islands
PT Kebun Ganda Prima Indonesia 89.99 89.99 Ownership of oil palm plantations (PT KGP) ③
Held by Asian Synergies Limited
PT Citranusa Intisawit Indonesia 89.99 89.99 Ownership of oil palm plantations and (PT CNIS) ③ mill
Held by PT Sarana Inti Pratama
PT Riau Agrotama Plantation Indonesia 89.99 89.99 Ownership of oil palm plantations (PT RAP) ③
PT Citra Kalbar Sarana Indonesia 89.99 89.99 Ownership of oil palm plantations (PT CKS) ③ 96 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
19. Investment in subsidiary companies (cont’d)
Country of Percentage of Name of subsidiaries incorporation equity held Principal activities % 2010 2009
Held by PT Sarana Inti Pratama (cont’d)
PT Jake Sarana Indonesia 89.91 89.91 Ownership of oil palm plantations (PT JS) ③
Held by PT Mentari Subur Abadi
PT Agro Subur Permai Indonesia 53.73 53.73 Ownership of oil palm plantations (PT ASP) ③
Held by PT Mega Citra Perdana
PT Gunta Samba Indonesia 53.99 53.99 Ownership of oil palm plantations (PT GS) ④
PT Multi Pacific International Indonesia 53.98 53.98 Ownership of oil palm plantations (PT MPI) ④
Held by PT Cangkul Bumisubur
PT Pelangi Inti Pertiwi Indonesia 90.00 90.00 Ownership of oil palm plantations (PT PIP) ③
Held by PT PP London Sumatra Indonesia Tbk
PT Multi Agro Kencana Prima Indonesia 42.83 47.03 Rubber mill and trading (PT MAKP) ⑤
Lonsum Singapore Pte. Ltd. Singapore 53.53 58.79 Trading and marketing (LSP) ⑥
PT Tani Musi Persada Indonesia 53.50 58.74 Ownership of oil palm plantations (PT TMP) ⑤
PT Sumatra Agri Sejahtera Indonesia 53.50 58.74 Ownership of oil palm plantations (PT SAS) ⑤
PT Tani Andalas Sejahtera Indonesia 48.18 52.91 Ownership of oil palm plantations (PT TAS) ⑤
Held by Lonsum Singapore Pte. Ltd.
Sumatra Bioscience Pte. Ltd. (SBPL) * Singapore 53.53 58.79 Trading and marketing INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 97
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
19. Investment in subsidiary companies (cont’d)
* Unaudited management accounts have been used for the preparation of the consolidated financial statements of the Group.
Audited by: ① Ernst & Young LLP, Singapore ② Purwantono, Suherman & Surja, Indonesia (member firm of Ernst & Young Global) ③ Eddy Siddharta & Rekan, Indonesia ④ Hendrawinata Gani & Hidayat, Indonesia (member firm of Grant Thornton International) ⑤ Jamaludin, Aria, Sukimto & Rekan (JAS&Rekan) ⑥ Saw Meng Tee & Partners PAC, Singapore
In accordance to Rule 716 of the Singapore Exchange Securities Trading Limited’s Listing Manual, the Audit Committee and Board of Directors of the Company confirmed that they are satisfied that the appointment of different auditors for its subsidiaries and associated companies would not compromise the standard and effectiveness of the audit of the Company.
Establishment of a new subsidiary
In connection with the Group’s internal restructuring of the shareholding structure of certain entities within the Group so as to consolidate all the joint ventures with the Salim Group (a controlling shareholder of the Company) under a single investment holding company, the Company had on 14 May 2010 incorporated a subsidiary in Singapore known as IndoInternational Green Energy Resources Pte. Ltd. (“IGER”). IGER has an issued share capital of S$5,600,000, of which 60% is owned by PT SIMP and 40% is held by a member of the Salim Group, Indogreen Energy Resources Pte. Ltd. (“IER”).
IGER subscribed for new shares in PT MCP , PT MSA, PT SBN and PT LPI (the “Relevant Entities”), as well as acquired 40,000 and 41,500 existing shares in PT LPI from PT SIMP and the Salim Group respectively for an aggregate cash consideration of approximately Rp362.0 billion.
Following the internal restructuring, the effective shareholding interests of PT SIMP and the Salim Group in the Relevant Entities remain unchanged.
Divestment of interest in a subsidiary company
In December 2010, the Company divested 8.03% or 109,521,000 shares in Lonsum for a cash consideration of approximately Rp1.3 trillion. Of which, 3.1% was sold to PT SIMP and 4.9% was sold via a private placement to certain external investors.
Following the Company’s sale to the external investors, the Group’s effective interest in Lonsum has reduced from 58.79% to 53.53%. The net proceeds to the Group were Rp764.3 billion with no gain or loss recognised in the statement of comprehensive income. The Group had accounted for the above divestment in Lonsum as an equity transaction with appropriate adjustments to non-controlling interests to reflect the Group’s reduced equity interest in Lonsum. The difference amounting to Rp13.6 billion between the carrying amount relating to the disposal of Lonsum shares to external parties and the consideration received was recognised directly in other reserves.
20. Loans to a subsidiary company
Company 2010 2009 Rp million Rp million
Loans 2,259,501 2,259,501
The loans to a subsidiary company are unsecured and interest-free. The amount forms part of the Company’s net investment in the subsidiary company and is not expected to be settled in the next twelve months. 98 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
21. Other non-current assets
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Advances and deposits 213,090 294,706 338,170 Loans to employees 32,182 19,193 20,366 Long-term prepayments 28,992 6,619 7,428 Plasma receivables 33(a) 600,656 456,845 358,993 Others 31,987 71,328 21,737
Total 906,907 848,691 746,694
Company 31.12.10 31.12.09 Rp million Rp million
Advances and deposits 22 24
Advances and deposits
Advances and deposits mainly relate to utility and rental deposits, advance payments for land and non-controlling interest acquisition, and advance payments made to suppliers and contractors in relation to the purchases of capital equipment, raw materials and services.
Loans to employees
The Group provides non-interest bearing loans to officers and employees subject to certain terms and criteria. Such loans, which are being collected through monthly salary deductions over five years, from the date of the loan, are carried at amortised cost using effective interest method, with discount rate of 6.82% in 2010 (2009: 8.98%).
22. Inventories
Group Note 2010 2009 Rp million Rp million
Balance sheet: Raw materials 497,071 321,372 Work in progress 20,455 11,510 Finished goods 431,476 365,239 Spare parts 372,246 384,436
Total inventories at the lower of cost or net realisable value 1,321,248 1,082,557
Statement of comprehensive income: Net changes in provision for decline in market value and obsolescence of inventories recognised as an expense 7 7,988 10,343
Inventories of the Group amounting to approximately Rp33.8 billion as at 31 December 2010 (2009: Rp37.9 billion) has been pledged as security against the bank borrowings of the Group (Note 26). INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 99
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
23. Trade and other receivables
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Trade receivables – Third parties 449,916 351,056 474,994 Related parties 291,938 202,215 92,957 Less: Allowance for doubtful third party trade receivables (561) (257) (422) Other receivables – Future commodity contracts 33(b) 85,175 104,643 128,605 Plasma receivables 18,079 17,321 12,129 Advances to suppliers 42,332 112,554 59,352 Repurchase transaction – – 10,765 Loans to employees 9,707 7,265 5,857 Related parties 881 2,180 317 Prepayments 24,301 13,420 13,378 Claims for tax refund 2,095 8,649 26,652 Others 16,503 20,610 27,857
Total trade and other receivables 940,366 839,656 852,441
Company 31.12.10 31.12.09 Rp million Rp million
Other receivables – Subsidiary companies 17,216 16,911 Related party 202 84 Prepayments 221 369 Claims for tax refund 1,099 254 Others 2,205 8
Total trade and other receivables 20,943 17,626
Trade receivables are non-interest bearing and are generally on 7 to 45 days term of payments. They are recognised at their original invoice amounts which represent their fair values on initial recognition. The Group’s trade receivables relate to a large number of diversified customers, there is no concentration of credit risk. Receivables from future commodity contracts are carried at their respective quoted market prices. Future commodity contract transactions are further discussed in Note 33(b).
Trade and non-trade receivables from related parties, and receivables from subsidiary companies are unsecured, interest-free and are repayable on demand.
Trade and other receivables are denominated in the following currencies:
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Indonesian Rupiah 582,527 566,388 412,627 US Dollars 354,188 267,708 397,634 Singapore Dollars 1,395 726 40,420 Euro 1,868 4,834 1,757 Others 388 – 3
940,366 839,656 852,441 100 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
23. Trade and other receivables (cont’d)
Trade and other receivables are denominated in the following currencies:
Company 31.12.10 31.12.09 Rp million Rp million
Indonesian Rupiah 2,153 – US Dollars 1 – Singapore Dollars 18,789 17,626
20,943 17,626
Receivables that are past due but not impaired
The Group has trade receivables amounting to Rp105.0 billion (2009: Rp154.4 billion) that are past due at the end of the reporting period but not impaired. The analysis of their aging at the end of the reporting period is as follows:
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Overdue but not impaired: 1 - 30 days 98,494 87,124 73,958 31 - 60 days 860 24,600 15,514 61 - 90 days 2,105 4,479 11,397 More than 90 days 3,561 38,198 9,070
105,020 154,401 109,939
Receivables that are impaired
As at 31 December 2010, trade receivables amounting to Rp561.0 million (2009: Rp257.0 million) were individually impaired and fully provided for. Trade receivables that are determined to be impaired at the end of the reporting period relate to debtors that are in financial difficulties and have defaulted on payments.
Movement in allowance for doubtful debts account:
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
At 1 January 257 422 2,500 Charge for the year 9 304 – 50 Write-back 9 – (165) (2,128)
At 31 December 561 257 422 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 101
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
23. Trade and other receivables (cont’d)
Advances to suppliers
Advances to suppliers represent advance payments to suppliers and contractors in relation to the following purchases:
Group 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Raw materials 3,935 18,177 14,403 Factory supplies, spare parts and others 38,397 94,377 44,949
42,332 112,554 59,352
Advances to suppliers are unsecured, interest-free and obligations of the suppliers are expected to be fulfilled within the next twelve months.
24. Cash and cash equivalents
Group Company 2010 2009 2010 2009 Rp million Rp million Rp million Rp million
Cash at bank and in hand 1,292,890 738,349 178,580 5,660 Short term deposits 2,503,103 1,063,996 1,442,532 177,790
Cash and cash equivalents 3,795,993 1,802,345 1,621,112 183,450
Cash and cash equivalents are denominated in the following currencies:
Indonesian Rupiah 2,076,576 910,529 876,929 – US Dollars 1,009,293 724,363 35,967 18,040 Singapore Dollars 710,124 167,453 708,216 165,410
3,795,993 1,802,345 1,621,112 183,450
Cash at bank balances earn interest at floating annual interest rates based on daily bank deposit rates. Short term deposits are made for varying periods ranging from one day to three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates.
Cash of a subsidiary is used as collateral to secure the term loan and uncommitted account payables financing and uncommitted revolving credit facilities. As of 31 December 2010, the amount of the said subsidiary’s cash collateralized for the said loans but not restricted for use was Rpnil (2009: Rp12.5 million). 102 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
25. Trade and other payables and accruals
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Trade payables – Third parties 314,783 290,195 335,468 Related parties 8,562 5,521 4,052 Other payables – Third parties 204,740 120,218 119,409 Future commodity contracts 33(b) 85,003 104,943 124,716 Advances from customers 98,244 92,891 79,557 Due to parent company 17,036 22,055 1,024 Related parties 27 83 1,188 Due to non-controlling interest of a subsidiary company – – 10,500 Accrued operating expenses 435,924 395,298 340,762 Taxes payable 43,552 41,598 25,793
1,207,871 1,072,802 1,042,469
Company 31.12.10 31.12.09 Rp million Rp million
Other payables – Third parties 4 4,227 Related parties 527 505 Accrued operating expenses 8,041 6,525
8,572 11,257
Trade payables are normally settled on 7 to 60 days credit payment terms. The carrying amounts of the Group’s trade payables, other payables and accruals approximate their fair values. Payables incurred on future commodity contract transactions are carried at their respective quoted market prices.
Trade payables to related parties are non-interest bearing, unsecured and normally settled on 14 to 60 days terms. Payables to a parent company and non-controlling shareholder of a subsidiary company are unsecured, interest-free and repayable on demand. Other payables to related parties are unsecured and non-interest bearing.
Advances from customers represent advance payments relating to the sale of finished goods. These advances are trade in nature, unsecured, interest-free, and the obligations to the customers are expected to be fulfilled within the next twelve months. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 103
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
25. Trade and other payables and accruals (cont’d)
Trade and other payables and accruals are denominated in the following currencies:
Group Note 31.12.10 31.12.09 1.1.09 Rp million Rp million Rp million (Restated) (Restated)
Indonesian Rupiah 938,379 923,357 865,461 US Dollars 133,178 135,310 160,190 Euro 26,765 2,643 611 Singapore Dollars 106,947 11,397 15,781 Others 2,602 95 426
Total trade and other payables and accruals 1,207,871 1,072,802 1,042,469
Company 31.12.10 31.12.09 Rp million Rp million
Singapore Dollars 8,572 11,257
26. Interest-bearing loans and borrowings
Group Effective interest rate (%) Maturities 2010 2009 Rp million Rp million
Current
Indonesian Rupiah loans
Working capital credit facilities 8.92 to 12.74 2011 1,875,122 1,086,802 (2009:9.50 to 15.27)
Current maturities of long-term loans and borrowings: Loans to refinance credit facilities 9.00 to 9.50 2011 200,000 130,000 used to acquire majority equity (2009: 9.50 to 11.77) ownership in Lonsum Investment loans 5.00 to 13.00 2011 303,257 46,116 (2009: 7.00 to 14.00) Obligations under finance lease 5.05 to 18.50 2011 1,071 5,854 (2009: 5.05 to 18.50)
Subtotal 2,379,450 1,268,772
US Dollar loans
Current maturities of long-term loans and borrowings: Loans to refinance credit facilities 1.50 to 1.89 2011 285,065 197,685 used to acquire majority equity (2009: 1.50 to 3.53) ownership in Lonsum Uncommitted term loans 2.55 to 4.28 2011 123,626 82,250 (2009: 2.99 to 4.03) Investment loans 3.29 to 4.22 2011 27,379 197,757 (2009: 3.97 to 4.23)
Subtotal 436,070 477,692
Total current interest- bearing loans and borrowings 2,815,520 1,746,464 104 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
26. Interest-bearing loans and borrowings (cont’d)
Group Effective interest rate (%) Maturities 2010 2009 Rp million Rp million
Non-current
Indonesian Rupiah bonds
Bonds and Sukuk Ijarah payables Salim Ivomas Pratama Bonds I Year 2009 11.95 2014 447,788 446,989 Salim Ivomas Pratama Sukuk Ijarah I Year 2009 *) 2014 275,321 274,813
Total non-current bonds and Sukuk Ijarah payables 723,109 721,802
Indonesian Rupiah loans
Loans to refinance credit facilities 9.00 to 9.50 2013 570,000 770,000 used to acquire majority equity (2009: 9.50 to 11.77) ownership in Lonsum Investment and term loans 5.00 to 13.00 2012 - 2019 2,430,874 1,938,465 (2009: 5.00 to 15.27) Obligations under finance lease 5.05 to 18.50 2012 50 1,140 (2009: 5.05 to 18.50)
Subtotal 3,000,924 2,709,605
US Dollar loans
Loans to refinance credit facilities 1.50 to 1.89 2013 812,066 1,147,311 used to acquire majority equity (2009: 1.50 to 3.53) ownership in Lonsum Uncommitted term loans 2.29 to 4.28 2012 - 2018 723,776 603,950 (2009: 2.99 to 4.03) Investment and term loan 3.29 to 4.22 2015 418,419 30,347 (2009: 3.97 to 4.16)
Subtotal 1,954,261 1,781,608
Total non-current interest- bearing loans and borrowings 4,955,185 4,491,213
*) – The Sukuk Ijarah has a fixed Sukuk Ijarah return of Rp32.3 billion per annum. For accounting and reporting purposes, the Sukuk Ijarah is carried and presented in the consolidated balance sheets at amortised cost using effective interest rate of 11.96% per annum. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 105
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
26. Interest-bearing loans and borrowings (cont’d)
Bonds and Sukuk Ijarah payables
In December 2009, PT SIMP, a subsidiary of the Company issued 5-year Indonesian Rupiah Bonds and Islamic Leased-based bonds. The details are as follows:
a. Salim Ivomas Pratama I Bonds Year 2009 (“Bonds”) issued on 1 December 2009 with face value of Rp452.0 billion and will be due within five years on 1 December 2014; and
b. Sukuk Ijarah Salim Ivomas Pratama I Year 2009 (“Sukuk Ijarah”) issued on 1 December 2009 with face value of Rp278.0 billion and will be due within five years on 1 December 2014.
The Bonds and Sukuk Ijarah are not secured by any specific assets of PT SIMP. However all PT SIMP’s assets, except for those already used to secure liabilities to other creditors, were used to secure on pari-passu basis to the other liabilities, including the Bonds and Sukuk Ijarah.
The Company may at anytime to buy or sell back all or portion of Bonds and Sukuk Ijarah at the open market. Buy back of Bonds and Sukuk Ijarah will be undertaken in accordance with the prevailing laws and regulation.
Loans Used to Acquire Majority Equity Ownership in Lonsum
Several long-term facilities (Rp1,000.0 billion) investment loan from PT Bank Central Asia Tbk (“BCA”) and US$160.0 million syndicated loan), which are secured by corporate guarantees from the Company in proportion to its equity ownership in PT SIMP of 90%.
Working Capital Credit Facilities
a. an unsecured working capital loan from PT Bank Mandiri (Persero) Tbk with a maximum credit limit of Rp1,000.0 billion (2009: Rp1,000.0 billion). PT SIMP has drawdown Rp850.0 billion as of 31 December 2010;
b. a time loan revolving from BCA in 2010 with a maximum credit limit of Rp300.0 billion. PT SIMP has fully drawdown this loan facility;
c. an uncommitted revolving credit facility from PT Bank DBS Indonesia (“DBS”) with a maximum credit limit of Rp250.0 billion (2009: Rp250.0 billion). PT SIMP has fully drawdown this loan facility;
d. uncommitted short-term advance facilities and committed revolving working capital facilities from PT Bank Rabobank International Indonesia (“Rabobank”), each for PT LPI, PT MSA, PT SBN and PT GS, with maximum credit limits US$21.0 million, US$8.5 million, US$3.5 million and US$4.0 million respectively, (2009: US$37.0 million), which can be drawdown in Rupiah currency. In addition, PT LPI obtained a committed revolving working capital from Rabobank with a maximum credit limit of Rp50.0 billion in 2010. These entities have drawdown a total of Rp207.6 billion of the said facilities as of 31 December 2010.
e. time loan revolving obtained by PT LPI and PT GS from BCA amounting to Rp95.0 billion and Rp13.0 billion with maximum credit limits of Rp200.0 billion and Rp13.0 billion (2009: Rp13.0 billion) respectively; and
f. revolving credit facilities obtained by PT LPI from The Hongkong and Shanghai Banking Corporation Limited, Jakarta branch (“HSBC”) and DBS, amounting to Rp100.0 billion and Rp59.5 billion respectively, with maximum credit limits of Rp100.0 billion and Rp300.0 billion (2009: Rp130.0 billion) respectively. 106 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
26. Interest-bearing loans and borrowings (cont’d)
The above loans in (b) to (c) were guaranteed by the Company in proportion to its equity ownership in PT SIMP of 90%.
The above loans in (d) to (f) were guaranteed by PT SIMP in proportion to its equity ownership in each of the subsidiary. In 2009, the loan obtained by PT LPI from DBS was secured by PT LPI’s cash, receivables, inventories, property, plant and equipment.
Investment and Term Loans
Included in these loans are:
a. investment loans of Rp80.0 billion and Rp220.0 billion obtained by PT SIMP from PT Bank CIMB Niaga Tbk (“CIMB Niaga”) respectively, with total maximum credit limits of Rp300.0 billion (2009: Rp300.0 billion);
b. term loan facility obtained by PT SIMP from DBS with a maximum credit limit of Rp250.0 billion (2009: Rp250.0 billion);
c. investment loans from BCA with total credit limits of Rp1,067.4 billion (2009: Rp647.4 billion) obtained by PT MISP, PT SBN, PT MSA, PT ASP, PT GS, PT MPI, PT CNIS and PT KGP;
d. various term loans and investment loans obtained by PT LPI from several creditors with total credit limits of Rp943.0 billion and US$50.0 million. These loans were used by PT LPI for working capital and refinancing its Rp942.5 billion investment loan facility obtained from PT Bank Rakyat Indonesia (Persero) Tbk (“BRI”);
e. term loan and investment loans obtained by PT GS from HSBC and BRI with total credit limits of Rp37.5 billion (2009: Rp428.3 billion);
f. term loan facilities from PT Bank Permata Tbk obtained by PT CNIS and PT KGP with total credit limits of Rp37.5 million (2009: Rp37.5 million);
g. an uncommitted revolving credit facility obtained by PT SIMP from DBS Bank Ltd., Singapore (“DBS Singapore”) with a maximum credit limit of US$48.0 million (2009: US$48.0 million);
h. revolving credit facility obtained by PT SIMP from Sumitomo Mitsui Banking Corporation, Singapore branch (“SMBC”) with a maximum credit limit of US$50.0 million; and
i. term loan facility obtained by PT SIMP from ING Bank N.V., Singapore branch (“ING Singapore”) with a maximum credit limit of US$25.0 million (2009: US$25.0 million).
The above loans in (a) to (b) and (g) to (i) above were guaranteed by the Company in proportion to its equity ownership in PT SIMP of 90%.
The above loans in (c) to (f) were guaranteed by PT SIMP in proportion with its equity ownership in each of the subsidiary, except for the investment loans of PT GS which are secured by inventories, biological assets, land rights, buildings and improvements, and machinery of PT GS, and specifically for the loan under the nucleus and plasma scheme, secured by land rights under the name of the plasma farmers.
As of 31 December 2010 and 2009, the Group has complied with all of the covenants of the loans and borrowings as disclosed in this Note or obtained the necessary waiver as required. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 107
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
27. Other payables
Group Note 2010 2009 Rp million Rp million
Provision for asset dismantling costs 18,482 16,135 Deferred income 226 302 Due to related parties 260,169 279,911 Others 5,955 26,748
284,832 323,096
The amounts due to related parties represents loans provided to the subsidiaries from their non-controlling shareholders, which are not expected to be repaid within 3 years, unsecured and subject to interest at commercial rates.
provision for asset dismantling costs
Provision for asset dismantling costs represents estimated liabilities for the costs to dismantle, remove and restore the sites of refinery, fractionation and margarine plants located in Jakarta, Indonesia. Changes in provision for asset dismantling costs are presented as part of “Other operating expenses” in the consolidated statement of comprehensive income as shown in Note 8. The resulting outflows of economic benefits of this provision are expected to take place in 2016.
The movement in provision for asset dismantling costs is:
Balance at 1 January 16,135 12,916 Movement for the year 8 2,347 3,219
Balance at 31 December 18,482 16,135
28. Employee benefits
The Plantations division and certain subsidiaries of the Group have defined contribution retirement plans covering substantially all of their qualified permanent employees.
The Group’s contributions to the funds are computed at 10.0% and 7.0% of the basic pensionable income for staff and non- staff employees, respectively. Total pension cost charged to operations in 2010 is Rp13.0 billion (2009: Rp13.0 billion).
On top of the benefits provided under the above-mentioned defined contribution retirement plans, the Group has also recorded additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to the qualified employees, as required under the Labour Law. The amounts of such additional provisions were determined based on actuarial computations prepared by an independent firm of actuaries using the “Projected Unit Credit” method. As at 31 December 2010, the balance of the related actuarial liability for employee benefits is presented as “Employee benefits liabilities” in the consolidated balance sheet. 108 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
28. Employee benefits (cont’d)
Changes in the present value of the defined benefit obligation are as follows:
Note 2010 2009 Rp million Rp million
Benefit obligation at 1 January 442,960 355,372 Current service cost 69,733 55,641 Interest cost on benefit obligation 80,801 58,098 Amortisation of past service cost 4,380 2,581 Net actuarial losses recognised during the year 19,163 13,511 Benefits paid (43,003) (31,678) Gains on curtailments and settlements – (10,565)
Benefit obligation at 31 December 574,034 442,960
provision for employee benefits
The principal assumptions used in determining post-employment obligations for the Group’s plan are as follows:
Annual discount rate : 9.0% (2009: 11.0%) Future annual salary increase : 9.0% (2009: 10.0%) Annual employee turnover rate : 6.0% for employees under 30 years old and linearly decrease until 0% at the age of 52 years Disability rate : 10% from mortality rate Mortality rate reference : Indonesian Mortality Table 1999 Retirement age : 55 years (2009: 55 years) Expected annual return on plan assets : 8.0% (2009: 9.0%)
The following table summarise the component of net employee benefits expense recognised in the consolidated statement of comprehensive income:
Group Note 2010 2009 Rp million Rp million
Current service cost 69,733 55,641 Interest cost on benefit obligations 80,801 58,098 Net actuarial losses recognised during the year 19,163 13,511 Amortisation of past service cost 4,380 2,581 Gains on curtailments and settlements – (10,565)
Net employee benefit expense 9 174,077 119,266 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 109
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
29. Share capital and treasury shares
(a) Share capital
Group 2010 2009 No. of shares Rp million No. of shares Rp million
Balance as at 1 January/ 31 December 1,447,782,830 3,584,279 1,447,782,830 3,584,279
The movement in the share capital of the Company is as follows:
Company 2010 2009 No. of shares Rp million No. of shares Rp million
Balance as at 1 January / 31 December 1,447,782,830 10,912,411 1,447,782,830 10,912,411
The holders of ordinary shares (except treasury shares) are entitled to receive dividends as and when declared by the Company. Each ordinary share carries one vote per share without restriction. The ordinary share has no par value.
(b) Treasury shares
Group and Company 2010 2009 No. of shares Rp million No. of shares Rp million
Balance as at 1 January / 31 December – – 9,000,000 29,283
On 11 November 2010, the Company disposed 9,000,000 treasury shares for a net proceeds of Rp173.4 billion.
30. Revenue reserves
Company 2010 2009 Rp million Rp million
Retained earnings :
Balance at 1 January 124,058 143,766 Profit/ (loss) for the year 161,732 (19,708)
Balance at 31 December 285,790 124,058
Movement in the reserves of the Group are shown in the Consolidated Statement of Changes in Equity. There are no dividends declared, proposed or paid in 2010 and 2009. 110 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
31. Other reserves
The movement in other reserves is due to the following:
(a) gain on sale of treasury shares of Rp144.2 billion
This represents the gain arising from sale of treasury shares. No dividend may be paid, and no other distribution (whether in cash or otherwise) of the Company’s assets (including any distribution of assets to members on a winding up) may be made in respect of this reserve.
(b) Changes arising from disposal of shares in a subsidiary company of Rp13.6 billion
This represents the changes in ownership interest of a subsidiary that does not result in a loss of control.
32. Acquisition of subsidiaries and non-controlling interests
The following business combinations took place in 2009:
(a) Acquisition of a subsidiary, PT IBP
On 14 August 2009, PT SSP and PT IIP entered into Conditional Sale and Purchase Agreement with Mr. Agus Sjafrudin (“AS”) and PT Karyahasta Bhumi Sriwijaya (“KBS”), the respective owners of 150 shares and 100 shares in PT IBP. In accordance with the said agreement, AS and KBS shall sell their respective shares in PT IBP to PT SP and PT IIP for a total consideration of Rp8.5 billion.
The said acquisition transaction was completed in October 2009. Accordingly, PT IBP has since become a 100%-owned subsidiary of the Group.
(b) Acquisition of additional interests in PT SAIN and its subsidiaries
In accordance with the Conditional Sale and Assignment of the Exchangeable Bond Agreement with Lyminton Pte. Ltd., Singapore (“LMT”) (the “LMT Agreement”), PT SIMP acquired a bond that was exchangeable into 15,499 shares representing 29.98% of PT SAIN’s total issued share capital, for a cash consideration of US$16.4 million.
The transaction was completed in February 2009. Accordingly, PT SIMP has since increased its equity interest in PT SAIN from 70.02% to 100%.
(c) Acquisition of additional interests in PT MISP
Pursuant to the Conditional Shares Sale and Purchase Agreement with PT Mulia Abadi Lestari (“MAL”) (the “MAL Agreement”), PT SIMP and PT IIP acquired from MAL 28,499,999 shares, representing 30% of the total issued share capital of PT MISP for a total cash consideration of Rp28.5 billion.
The transaction was completed in February 2009. Accordingly, PT SIMP has since increased its equity interest in PT MISP from 70% to 100%. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 111
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
32. Acquisition of subsidiaries and non-controlling interests (cont’d)
(i) Acquisition of a subsidiary
The fair value of the identifiable assets and liabilities of the acquired subsidiary at the acquisition were:
Acquisition in Year 2010 Acquisition in Year 2009 PT IBP Carrying value Fair value Carrying value Fair value Rp million Rp million Rp million Rp million
Property, plant and equipment – – 324 324 Biological assets – – 612 612 Deferred tax assets – – 23 23 Trade and other receivables – – 9 9 Advances and prepayments – – 1,000 1,000 Cash and cash equivalents – – 68 68 Other non-current assets – – 9,000 9,000 Total identifiable assets – – 11,036 11,036
Interest-bearing loans and borrowings – – 10,450 10,450 Trade and other payables – – 405 405 Total identifiable liabilities – – 10,855 10,855
Net assets – 181
Goodwill arising from acquisition (Note 16) – 8,319
Total cost of business combination – 8,500
Cash outflows on acquisition of the subsidiary is as follows:
2010 2009 Rp million Rp million
Cost of business combination – 8,500 Less: Net cash of the acquired subsidiary – (68)
Total cash outflow – 8,432
(ii) Acquisition of non-controlling interests in PT SAIN and PT MISP
Acquisitions in Year 2010 Acquisitions in Year 2009 PT SAIN and PT MISP Carrying value Fair value Carrying value Fair value Rp million Rp million Rp million Rp million
Non-controlling interests – 73,186 73,186
Net assets – 73,186
Goodwill arising from acquisition (Note 16) – 152,944
Total cost of business combination – 226,130 112 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
32. Acquisition of subsidiaries and non-controlling interests (cont’d)
Cash outflows on acquisition of non-controlling interests in subsidiaries are as follows:
2010 2009 Rp million Rp million
Cost of business combination – 226,130 Less: Advances paid in prior year – (136,666)
Total cash outflow – 89,464
The aggregate amount of net losses after tax of the subsidiaries acquired since the acquisition dates included in the Group’s consolidated statement of comprehensive income was RpNil (2009: Rp0.01 billion).
It is not practicable to disclose the revenue and profit before tax of the Group had the acquisitions took place at the beginning of the years, as the information on fair values of biological assets at the beginning of each year was not available to management.
33. Commitments and contingencies
(a) plasma receivables
The Indonesian government requires oil palm plantation companies to develop new plantations together with the local small landholders. This form of assistance to local small landholders is generally known as the “Plasma Scheme”. Once developed, the plasma plantations are transferred to the small landholders who then operate the plasma plantations under the supervision of the developer. In line with this requirement, certain subsidiary companies of the Group have commitments to develop plantations under the Plasma Scheme. The funding for the development of the plantations under the Plasma Scheme is provided by the designated banks and/or by the subsidiary companies. This includes the subsidiary companies providing corporate guarantees for the loans advanced by the banks.
When the plasma plantations start to mature, the plasma farmers are obliged to sell all their harvests to the subsidiary companies and a portion of the resulting proceeds will be used to repay the loans from the banks or the subsidiary companies. In situations where the sales proceeds are insufficient to meet the repayment obligations to the banks, the subsidiary companies also provide temporary funding to the plasma farmers to develop the plasma plantations and to repay the instalment and interest payments to the banks. The plasma farmers will repay the temporary funding to the subsidiary companies once the plantations have positive cash flows.
The loans advanced by the banks under the Plasma Scheme are secured by the sales proceeds of FFB of the respective plasma plantations and corporate guarantees from certain subsidiary companies for a maximum amount of Rp617.0 billion (2009: Rp575.1 billion) as at 31 December 2010.
During the financial year, the Group wrote-off of plasma receivables of Rp26.5 billion (2009: Rp26.6 billion) asthe recoverable value was lower than the related development cost. In addition, the Group also recorded an allowance for uncollectible plasma receivables in its consolidated balance sheet amounting to Rp91.8 billion (2009: Rp67.2 billion) in 2010. Based on a review of the plasma receivables of each project as at 31 December 2010, management believes that the above-mentioned allowance for uncollectible plasma receivables is sufficient to cover possible losses arising from the uncollectible plasma receivables. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 113
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
33. Commitments and contingencies (cont’d)
(a) plasma receivables (cont’d)
The accumulated development costs net of funds received are presented as Plasma receivables in the consolidated balance sheet and in the Plantations segment. An analysis of the movement in the plasma receivables is as follows:
Note 2010 2009 Rp million Rp million
Balance at 1 January 456,845 358,993 Write-off of plasma receivables 8 (26,459) (26,602) Loss/ (gain) arising from changes in fair value of plasma receivables 8 (5,854) 886 Provision for uncollectible plasma receivables 8 (24,599) (25,269) Conversion from plasma farmers and nucleus 72,698 10,430 Additional net investment 128,025 138,407
Balance at 31 December 21 600,656 456,845
(b) future commodity contracts transactions
The Group entered into future commodity contracts with several foreign entities, which are primarily intended to hedge the exposures on risks of losses arising from the fluctuations in prices of the commodities sold by a subsidiary company. These contracts do not qualify and therefore are not designated as hedges for accounting purposes.
The fair values of the related receivables and payables arising from the future commodity contracts determined based on the relevant quoted market prices at the balance sheet dates are as follows:
Note 2010 2009 Rp million Rp million
Financial assets Net receivables 23 85,175 104,643
Financial liabilities Net payables 25 85,003 104,943
There were no outstanding future commodity contracts as at 31 December 2010. 114 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
33. Commitments and contingencies (cont’d)
(c) Operating lease commitments
As Lessee
The Group has entered into commercial leases to lease land and buildings, equipment and transportation equipment. These non-cancellable operating leases have remaining lease terms from 1 to 3 years. Operating lease payments recognized in the statement of comprehensive income in 2010 amounted to Rp12.4 billion (2009: Rp14.7 billion).
Future minimum lease payments under non-cancellable operating leases at the end of the reporting period are as follows:
2010 2009 Rp million Rp million
Within one year 10,308 6,852 After one year but not more than five years 16,369 4,990
26,677 11,842
As Lessor
The Group has entered into a short-term commercial lease on its storage tanks. Operating lease income recognised in the consolidated statement of comprehensive income for the financial year ended 31 December 2010 amounted to Rp3.0 billion (2009: Rp6.7 billion).
(d) Contingent liability
The Company has provided corporate guarantees to banks for certain long-term and short-term credit facilities amounting to Rp3,355.4 billion (2009: Rp4,011.3 billion) obtained by its subsidiary companies.
(e) Sales commitments
As at 31 December 2010, Lonsum has sales commitments to deliver the following products to local and overseas customers within the next three months:
2010 2009 (Tonnes) (Tonnes)
Crude palm oil 26,033 23,705 Palm kernel 3,578 5,179 Rubber 907 1,875 Cocoa – 60
Total 30,518 30,819 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 115
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
33. Commitments and contingencies (cont’d)
(f) Commitments for long term investments
(i) Construction of a palm oil mill
In 2009 and 2010, each PT RAP and PT MSA separately entered into a construction agreement with PT Mindo-Tech, whereby the latter is committed to construct palm oil mills each with processing capacity of 40 metric tonnes of FFB per hour (which can be increased into 80 metric tonnes of FFB per hour), located at the province of West Kalimantan and South Sumatra, respectively, for contract value of Rp31.2 billion and US$4.7 million, and Rp55.1 billion and US$4.9 million, respectively.
(ii) Construction of a sugar refinery plant
PT LPI has a supply agreement with China CAMC Engineering Co. Ltd., whereby the latter is to supply machinery and equipment for a sugar refinery plant with daily processing capacity of 8,000 metric tonnes of sugarcane located at the province of South Sumatra for a total contract value of US$84.3 million. PT LPI also entered into a construction agreement with CAMCE-MPS JO, whereby the latter is to construct and erect a sugar refinery plant with total contract value of US$33.7 million.
(iii) Construction of a CPO refinery plant
PT SIMP’s Edible Oils and Fats Division engaged with Lipico Technologies Pte. Ltd., Singapore for the supply of machinery and equipment and construction of a CPO refinery plant at Tanjung Priok, province of Jakarta, with processing capacity of 1,400 metric tonnes per day for physical refining plant and 720 metric tonnes per day for dry fractionation plant; as well as for the factionation plant in Surabaya with processing capacity of 600 metric tonnes per day. Total contract value for the said construction was SGD16.6 million.
(iv) Commitments to acquire property and equipment
As of 31 December 2010, the Group has several contracts totalling Rp199.9 billion and US$9.5 million (2009: Rp334.6 billion and US$22.1 million), inclusive of the capital expenditure commitments relating to the construction contracts to acquire property and equipment.
(v) SAP Program Implementation
In 2010, PT SIMP and PT Deloitte Consulting (“DC”) entered into a Statement of Work General Section for SAP Agri Business Program, covering PT SIMP, Lonsum, PT GS and PT LPI (“SoW”) with total contract of US$5.6 million. This SoW is made based on Master Consulting Agreement between PT ISM and DC on September 2008 which was extended on 25 January 2011 till 10 June 2011. 116 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
33. Commitments and contingencies (cont’d)
(f) Commitments for long term investments (cont’d)
(vi) Decision from the Business Competition Supervisory Commission
In May 2010, the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or “KPPU”) has issued a decision on case No. 24/KPPU-I/2009, whereby PT SIMP and several other edible oil producers (together, the “Edible Oil Producers”), were judged for violation of Articles 4, 5 and 11 of Law No. 5, Year 1999 regarding prohibition of monopolistic practices and unfair business competition, and ordered penalties to each of the Edible Oil Producers. The penalty which was ordered to PT SIMP amounting to Rp25.0 billion. In June 2010, the Edible Oil Producers, including PT SIMP, filed objections against the said KPPU decision to the each domicile District Court (Pengadilan Negeri). On 13 August 2010, the Supreme Court issued a decree that appointed the Central Jakarta District Court to examine and decide on the objections filed by the Edible Oil Producers against the above-mentioned KPPU decision. Until February 2011, the Central Jakarta District Court has not issued a decision for the objections from the Edible Oil Producers.
(vii) Dispute of PT LPI’s HGU certificate
In 2008, certain individuals of Mulya Jaya village, Ogan Komering Ulu Timur District (“OKUT”) (collectively, the “Plaintiffs”), sued the Head of Land Office of OKUT via State Administrative Court (Pengadilan Tata Usaha Negara or the “PTUN”) of Palembang in connection with their claim of land ownership title under PT LPI’s Business Usage Rights (“ Hak Guna Usaha” or “HGU”) No. 03. PT LPI’s land under the said HGU Certificate is approximately 21,502 hectares. In September 2008, PT LPI filed an Application Letter to intervene the above case and therefore became an Intervening Defendant (Head of Land Office of OKUT and PT LPI collectively, the “Defendant”). In March 2009, the PTUN of Palembang concluded nullified and ordered revocation of HGU No. 03 and reprocess the certificate of HGU under PT LPI’s name after deducting the land area of the Plaintiffs. In response to the appeal filed by the Defendant in connection with the above-mentioned decision, on 1 June 2009, the State Administrative High Court (Pengadilan Tinggi Tata Usaha Negara or the “PT TUN”) Medan accepted the Defendant’s appeal and rescinded the above-mentioned PTUN decision. The said decision from PT TUN Medan was subsequently upheld by the Supreme Court through its decision dated 29 September 2009, which was final and binding. In June 2010, the Plaintiffs submitted a Memorandum for Civil Review as an extraordinary legal course against the above mentioned Supreme Court decision. Until February 2011, the Supreme Court has not made any decision on the said extra-ordinary legal course from the Plaintiffs.
INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 117
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
34. Related party transactions
In addition to those related party information disclosed elsewhere in the relevant notes to the consolidated financial information, the following are the significant transactions between the Group and related parties (who are not members of the Group) that took place during the financial year ended 31 December 2010 and 2009 at the terms agreed between the parties:
A Shareholder Related Other related Nature of transactions Year (Group) companies parties Rp million Rp million Rp million
Sales of goods 2010 – 2,484,749 17,200 2009 1,206,404 1,062,420 –
Purchases of merchandise and packaging 2010 – 19,865 – 2009 4 20,194 –
Purchases of services, transportation equipment and spare parts 2010 3,266 578 67,847 2009 – 3 59,674
Pump services 2010 – – 4,509 2009 – – 4,209
Interest expense 2009 866 – –
Rental 2010 2,155 – 6,200 2009 – – 8,689
Freight expenses 2010 – 37,230 – 2009 – 41,366 –
Insurance 2010 – – 12,094 2009 – – 8,780
Since 1996, a related party has granted the Group the right to use a parcel of land located at North Jakarta with an aggregate area of approximately 19,875 square metres under a lease agreement dated 1 June 1996. The Group made a one-time payment amounting to Rp11.0 billion in 1996 as prepaid rental for the lease period from June 1996 to June 2016 with no requirement for further rental payment. The Group amortises the prepaid lease rental over 20 years on a straight line basis and the annual amortisation charge amounts to Rp550.0 million.
Compensation of key management personnel of the Group
2010 2009 Rp million Rp million
Salaries and short-term employee benefits 56,396 51,703 Termination benefits - 3,514 Post-employment benefits 28,059 17,206
Total compensation paid to the key management personnel 84,455 72,423
Comprise amounts paid to : - Directors of the Group 28,474 27,904 - Other key management personnel 55,981 44,519
84,455 72,423 118 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
35. financial risk management objectives and policies
The Group is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include interest rate risk, market risk (including currency risk and commodity price risk), credit risk and liquidity risk The board of directors reviews and agrees policies and procedures for the management of these risks.
The Group’s principal financial instruments comprise interest-bearing loans and borrowings, and cash and short-term deposits. The main purpose of these financial instruments is to raise funds for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.
It is and has been the Group’s policy that no trading in financial instruments shall be undertaken.
The following sections provide details regarding the Group and Company’s exposure to the above mentioned financial risks and the objectives, policies and processes for the management of these risks.
There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risks.
(a) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. The Group’s interest rate risk mainly arises from loans and borrowings for working capital and investment purposes. Borrowings at variable rates expose the Group to fair value interest rate risk. There are no loans and borrowings of the Group at fixed interest rates.
For working capital and investment loans and borrowings, the Group may seek to mitigate its interest rate risk by passing it on to its customers.
Sensitivity analysis for interest rate risk
As at 31 December 2010, had the interest rates of the loans and borrowings been 50 basis points higher/lower (2009: 50 basis points) with all other variables held constant, profit before tax for the year ended 31 December 2010 would have been Rp2.9 billion (2009: Rp1.9 billion) lower/higher accordingly, mainly as a result of higher/lower interest charge on the loans and borrowings with floating interest rates.
(b) foreign currency risk
The Group’s reporting currency is the Indonesian Rupiah. The Group faces foreign exchange risk as its borrowings, export sales and the costs of certain key purchases which are either denominated in the United States dollars or whose price is significantly influenced by their benchmark price movements in foreign currencies (mainly US Dollar) as quoted on international markets. To the extent that the revenue and purchases of the Group are denominated in currencies other than Indonesian Rupiah, and are not evenly matched in terms of quantum and/or timing, the Group has exposure to foreign currency risk.
The Group does not have any formal hedging policy for foreign exchange exposure. However, in relation to the matters discussed in the preceding paragraph, the fluctuations in the exchange rates between Indonesian Rupiah and United States Dollar provide some degree of natural hedge for the Group’s foreign exchange exposure.
As at 31 December 2010, had the exchange rate of Rupiah against US Dollar depreciated/appreciated by 10% with all other variables held constant, profit before tax for the year ended 31 December 2010 would have been Rp132.7 billion (2009: Rp148.0 billion) lower/higher, mainly as a result of foreign exchanges gains/losses on the translation of cash and cash equivalents, trade receivables, interest-bearing loans and borrowings and trade payables denominated in US Dollar. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 119
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
35. financial risk management objectives and policies (cont’d)
(c) Commodity price risk
Commodity price risk is the risk that the fair value or future cash flows of the Group’s financial instrument will fluctuate because of changes in market prices. The Group is exposed to commodity price risk due to certain factors, such as weather, government policy, level of demand and supply in the market and the global economic environment. Such exposure mainly arises from its purchase of CPO where the profit margin on sale of its finished products may be affected if the cost of CPO (which is the main raw material used in the refinery plants to manufacture cooking oils and fats products) increases and the Group is unable to pass such cost increases to its customers. In addition, the Group is also subject to fluctuations in the selling price of its manufactured CNO and the purchase price of copra (being the raw material used in the manufacture of CNO).
The Group’s policy is to minimise the risks arising from the fluctuations in the commodity prices by increasing self- sufficiency in CPO for the refinery operations (through the purchase of CPO from the Group’s own plantations). To the extent it is unable to do so, the Group may minimise such risks through forward contracts. As such, it may also be exposed to commodity price risk as changes in fair value of future commodity contracts are recognised directly in the consolidated statement of comprehensive income.
At 31 December 2010 and 2009, had the commodity prices been 10% higher/lower with all other variables held constant, profit before tax in 2010 would have been RpNil (2009: Rp0.73 billion) higher/lower, mainly as a result of higher/lower quoted market prices of the open position future commodity contracts.
(d) Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group is exposed to credit risk arising from the credit granted to its customers. To mitigate this risk, it has policies in place to ensure that sales of products are made only to creditworthy customers with proven track record or good credit history. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. For export sales, the Group requires cash against the presentation of documents of title.For domestic sales, the Group may grant its customers credit terms up to 45 days from the issuance of invoice. The Group has policies that limit the amount of credit exposure to any particular customer, such as, requiring sub-distributors to provide bank guarantees. In addition, receivable balances are monitored on an ongoing basis to reduce the Group’s exposure to bad debts.
When a customer fails to make payment within the credit terms granted, the Group will contact the customer to act on the overdue receivables. If the customer does not settle the overdue receivable within a reasonable time, the Group will proceed to commence legal proceedings. Depending on the Group’s assessment, specific provisions may be made if the debt is deemed uncollectible. To mitigate credit risk, the Group will cease the supply of all products to customers in the event of late payment and/or default.
The Group has no concentration of credit risk.
As disclosed in Notes 3.10 and 33(a), plasma receivables represent costs incurred for plasma plantation development which include costs for plasma plantations funded by the banks and temporarily self funded by the subsidiaries awaiting banks’ funding.
Plasma receivables also include advances to plasma farmers for topping up loan installments to the banks, advances for fertilizers and other agriculture supplies. These advances shall be reimbursed by the plasma farmers and the collateral in form of titles of ownership of the plasma plantations will be handed over to the plasma farmers once the plasma receivables have been fully repaid. 120 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
35. financial risk management objectives and policies (cont’d)
(d) Credit risk (cont’d)
The Group through partnership scheme also provides technical assistance to the plasma farmers to maintain the productivity of plasma plantations as part of the Group’s strategy to strengthen relationship with plasma farmers which is expected to improve the repayments of plasma receivables.
Exposure to credit risk
At the end of the reporting period, the Group’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the balance sheets.
Financial assets that are neither past due nor impaired
Trade and other receivables that are neither past due nor impaired are with creditworthy debtors with good payment record with the Group. Cash and cash equivalents, are placed with or entered into with financial institutions or companies with high credit ratings and no history of default.
Financial assets that are either past due or impaired
Information regarding financial assets that are either past due or impaired is disclosed in Note 23 (Trade receivables and other receivables).
(e) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group exposure to liquidity risk arises primarily from mismatches of maturities financial assets and liabilities. The Group manages its liquidity profile to be able to finance its capital expenditure and service its maturing debts by maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities.
The Group regularly evaluates its projected and actual cash flow information and continuously assesses conditions in the financial markets for opportunities to pursue fund-raising initiatives. These initiatives may include bank loans and borrowings and equity market issues. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 121
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
35. financial risk management objectives and policies (cont’d)
(e) Liquidity risk (cont’d)
The table below summarises the maturity profile of the Group’s financial assets and liabilities at the end of reporting period based on contractual undiscounted repayment obligations:
Within Within More than Total 1 year 1 to 5 years 5 years Rp million Rp million Rp million Rp million
Group
As at 31 December 2010 Financial liabilities:
Non-current interest-bearing loans and borrowings 6,757,519 – 6,243,661 513,858 Other payables (non-current) 284,832 – 284,832 – Trade and other payables and accruals 1,164,319 1,164,319 – – Current interest-bearing loans and borrowings 3,287,780 3,287,780 – –
Total undiscounted financial liabilities 11,494,450 4,452,099 6,528,493 513,858
As at 31 December 2009 Financial liabilities:
Non-current interest-bearing loans and borrowings 6,791,884 – 6,240,554 551,330 Other payables (non-current) 323,096 – 323,096 – Trade and other payables and accruals 1,031,204 1,031,204 – – Current interest-bearing loans and borrowings 1,848,130 1,848,130 – –
Total undiscounted financial liabilities 9,994,314 2,879,334 6,563,650 551,330
Undiscounted loans and borrowings with floating rates had been determined with reference to the applicable rates as at balance sheet dates.
Within Within More than Total 1 year 1 to 5 years 5 years Rp million Rp million Rp million Rp million
Company
As at 31 December 2010 Financial liabilities:
Trade and other payables and accruals 8,572 8,572 – –
As at 31 December 2009
Financial liabilities: Trade and other payables and accruals 11,257 11,257 – – 122 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
35. financial risk management objectives and policies (cont’d)
(e) Liquidity risk (cont’d)
The table below shows the contractual expiry by maturity of the Group’s and the Company’s contingent liabilities and commitments. The maximum amount of the financial guarantee contracts are allocated to the earliest period in which the guarantee could be called.
Within Within More than Total 1 year 1 to 5 years 5 years Rp million Rp million Rp million Rp million
As at 31 December 2010 Group Financial guarantees 5,415,045 1,564,788 3,571,951 278,306
Company Financial guarantees 3,355,353 1,192,004 2,017,695 145,654
As at 31 December 2009 Group Financial guarantees 5,062,880 1,406,238 3,450,412 206,230
Company Financial guarantees 4,011,279 1,274,511 2,584,488 152,280
36. fair value of financial instruments
Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in a forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate.
Financial instruments presented in the consolidated balance sheet are carried at the fair value, otherwise, they are presented at carrying amounts as either these are reasonable approximation of fair values or their fair values cannot be reliably measured. The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
(a) financial instruments carried at fair value or amortised cost
Net receivables and payables arising from future commodity contracts are stated based on their quoted market prices.
Plasma receivables and long-term loans to employees are carried at amortised cost using the effective interest method and the discount rates used are the current market incremental lending rate for similar types of lending.
Interest bearing Bonds and Sukuk Ijarah payables are carried at amortised cost using the effective interest method.
(b) financial instruments with carrying amounts that approximate their fair values
The fair value of cash and cash equivalents, current trade and other receivables, current trade and other payables, current bank loans and accrued expenses approximate their carrying values due to their short-term nature. The carrying amounts of long-term loans and borrowings with floating interest rates approximate their fair values as they are re-priced frequently. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 123
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
36. fair value of financial instruments (cont’d)
(c) financial instruments carried at amounts other than fair values
Investments in other unquoted ordinary shares representing ownership interest of below 20.0% equity ownership are carried at cost as their fair value cannot be reliably measured.
The non-current loan to a subsidiary company is carried at cost in the Company’s balance sheet as the loan is not expected to be repaid until the cash flow of the subsidiary company permits. Therefore, it is impractical to determine the fair value of this loan as the timing of future cash flow cannot be estimated reliably.
Set out below is a comparison by category of carrying amounts of all the Group’s and Company’s financial instruments that are carried in the financial statements:
Classification of financial instruments
Loans Fair value Liabilities at Non-financial and through profit amortised assets/ The Group receivables and loss cost liabilities Total Rp million Rp million Rp million Rp million Rp million
31 December 2010
Assets Biological assets – – – 10,453,082 10,453,082 Property, plant and equipment – – – 6,791,435 6,791,435 Goodwill – – – 3,155,786 3,155,786 Claims for tax refund – – – 400,241 400,241 Deferred tax assets – – – 363,149 363,149 Other non-current assets 877,915 – – 28,992 906,907 Inventories – – – 1,321,248 1,321,248 Trade and other receivables 871,638 – – 68,728 940,366 Prepaid taxes – – – 60,581 60,581 Cash and cash equivalents 3,795,993 – – – 3,795,993
5,545,546 – – 22,643,242 28,188,788
Liabilities Trade and other payables and accruals – – 1,164,319 43,552 1,207,871 Interest-bearing loans and borrowings – – 8,493,814 – 8,493,814 Income tax payable – – – 102,417 102,417 Other payables – – 284,832 – 284,832 Employee benefits liabilities – – – 574,034 574,034 Deferred tax liabilities – – – 1,825,524 1,825,524
– – 9,942,965 2,545,527 12,488,492 124 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
36. fair value of financial instruments (cont’d)
Classification of financial instruments (cont’d)
Loans Fair value Liabilities at Non-financial and through profit amortised assets/ The Group receivables and loss cost liabilities Total Rp million Rp million Rp million Rp million Rp million
31 December 2009
Assets Biological assets – – – 9,486,096 9,486,096 Property, plant and equipment – – – 5,696,726 5,696,726 Goodwill – – – 3,155,786 3,155,786 Claims for tax refund – – – 328,844 328,844 Deferred tax assets – – – 294,327 294,327 Other non-current assets 842,072 – – 6,619 848,691 Inventories – – – 1,082,557 1,082,557 Trade and other receivables 705,033 – – 134,623 839,656 Prepaid taxes – – – 112,779 112,779 Cash and cash equivalents 1,802,345 – – – 1,802,345
3,349,450 – – 20,298,357 23,647,807
Liabilities Trade and other payables and accruals – – 1,031,204 41,598 1,072,802 Interest-bearing loans and borrowings – – 6,959,479 – 6,959,479 Income tax payable – – – 106,182 106,182 Other payables – – 323,096 – 323,096 Employee benefits liabilities – – – 442,960 442,960 Deferred tax liabilities – – – 1,763,993 1,763,993
– – 8,313,779 2,354,733 10,668,512 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 125
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
36. fair value of financial instruments (cont’d)
Classification of financial instruments (cont’d)
Loans Fair value Liabilities at Non-financial and through profit amortised assets/ The Company receivables and loss cost liabilities Total Rp million Rp million Rp million Rp million Rp million
31 December 2010
Assets Property, plant and equipment – – – 65,844 65,844 Investment in subsidiary companies – – – 7,383,633 7,383,633 Loan to a subsidiary company 2,259,501 – – – 2,259,501 Other non-current assets 22 – – – 22 Trade and other receivables 19,623 – – 1,320 20,943 Cash and cash equivalents 1,621,112 – – – 1,621,112
3,900,258 – – 7,450,797 11,351,055
Liabilities Trade and other payables and accruals – – 8,572 – 8,572 Income tax payable – – – 130 130
– – 8,572 130 8,702
31 December 2009
Assets Property, plant and equipment – – – 70,001 70,001 Investment in subsidiary companies – – – 8,487,971 8,487,971 Loan to a subsidiary company 2,259,501 – – – 2,259,501 Other non-current assets 24 – – – 24 Trade and other receivables 17,003 – – 623 17,626 Cash and cash equivalents 183,450 – – – 183,450
2,459,978 – – 8,558,595 11,018,573
Liabilities Trade and other payables and accruals – – 11,257 – 11,257 Income tax payable – – – 130 130
– – 11,257 130 11,387 126 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
37. Capital management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value.
Certain subsidiary companies are required to comply with loan covenants imposed by their lenders, such as maintaining the level of existing share capital. This externally imposed requirement has been complied with by the relevant subsidiary companies for the financial year ended 31 December 2010 and 2009. Additionally, certain subsidiary companies in Indonesia are required by the new Corporate Law, effective from August 2007, to maintain a non-distributable reserve until it reaches 20% of the issued and paid share capital. This externally imposed capital requirement will be complied by the relevant subsidiary companies by their next annual general meeting.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2010 and 2009.
The Group monitors capital using gearing ratios, by dividing net debt with total equity. The Group’s policy is to keep the gearing ratio within the range of gearing ratios of leading companies in similar industry in Indonesia in order to secure access to finance at a reasonable cost.
2010 2009 Rp million Rp million
Non-current interest-bearing loans and borrowings and bonds and Sukuk Ijarah payables 5,678,294 5,213,015 Current interest-bearing loans and borrowings 2,815,520 1,746,464 8,493,814 6,959,479 Less : Cash and cash equivalents (3,795,993) (1,802,345)
Net debts 4,697,821 5,157,134
Total equity 15,700,296 12,979,295
Gearing ratio 30% 40%
38. Segment information
For management purposes, the Group is organized into business units based on their products and services and has two reportable operating segments as follows:
Plantations segment
Plantations segment is mainly involved in the development and maintenance of oil palm, rubber and sugar cane plantations and other business activities relating to palm oil, rubber and sugar cane processing, marketing and selling. This segment is also involved in the development and maintenance of cocoa, coconut, tea and coffee. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 127
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
38. Segment information (cont’d)
Edible oils and fats segment
Edible oils and fats segment produces, markets and sells edible oil, margarine, fats and other related products and CNO and its derivative products.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.
Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenues, segment expenses and segment results include transfers between business segments. Those transfers are eliminated for purposes of consolidation.
The following table presents revenue and profit and certain asset and liability information regarding the Group’s business segments:
Business segments
Plantations Edible Oils and Fats Others/ eliminations Total Rp million Rp million Rp million Rp million
Year ended 31 December 2010
Revenue Sales to external customers 2,867,105 6,617,176 – 9,484,281 Inter-segment sales 4,113,440 – (4,113,440) –
Total sales 6,980,545 6,617,176 (4,113,440) 9,484,281
Segment results 2,987,042 33,141 (87,665) 2,932,518
Net finance costs (338,560) Foreign exchange gain 60,925
Profit before tax 2,654,883 Income tax expense (748,728)
Net profit for the year 1,906,155 128 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
38. Segment information (cont’d)
Business segments (cont’d)
Plantations Edible Oils and Fats Others/ eliminations Total Rp million Rp million Rp million Rp million
Year ended 31 December 2010
Assets and liabilities Segment assets 21,771,446 3,405,732 (907,566) 24,269,612 Goodwill 3,155,786 – – 3,155,786
Deferred tax assets 363,149 Claims for tax refund 400,241
Total assets 28,188,788
Segment liabilities 1,417,134 2,707,327 (2,317,893) 1,806,568
Unallocated liabilities 8,753,983 Deferred tax liabilities 1,825,524 Income tax payable 102,417
Total liabilities 12,488,492
Other segment information Capital expenditure 1,676,273 534,935 20 2,211,228 Depreciation and amortisation 358,335 58,806 4,177 421,318 Gain from changes in fair value of biological assets 309,269 – – 309,269 Write-off of plasma receivables 26,459 – – 26,459 Provision for employee benefits 144,864 29,213 – 174,077
Year ended 31 December 2009
Revenue Sales to external customers 3,121,227 5,919,098 – 9,040,325 Inter-segment sales 2,925,137 – (2,925,137) –
Total sales 6,046,364 5,919,098 (2,925,137) 9,040,325
Segment results 2,876,768 (38,639) 122,088 2,960,217
Net finance costs (376,641) Foreign exchange gain 303,984
Profit before tax 2,887,560 Income tax expense (834,298)
Net profit for the year 2,053,262 INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 129
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
38. Segment information (cont’d)
Business segments (cont’d)
Plantations Edible Oils and Fats Others/ eliminations Total Rp million Rp million Rp million Rp million
Year ended 31 December 2009
Assets and liabilities Segment assets 18,663,930 2,202,475 (997,555) 19,868,850 Goodwill 3,155,786 – – 3,155,786
Deferred tax assets 294,327 Claims for tax refund 328,844
Total assets 23,647,807
Segment liabilities 1,409,753 1,465,711 (1,036,606) 1,838,858
Unallocated liabilities 6,959,479 Deferred tax liabilities 1,763,993 Income tax payable 106,182
Total liabilities 10,668,512
Other segment information Capital expenditure 2,285,257 72,002 21 2,357,280 Depreciation and amortisation 286,799 51,966 4,240 343,005 Gain from changes in fair value of biological assets 622,570 – – 622,570 Write-off of plasma receivables 26,602 – – 26,602 Provision for employee benefits 99,569 19,697 – 119,266 130 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
38. Segment information (cont’d)
geographical segments
The following table presents sales to customers based on the geographical location of the customers:
Region Revenue Eliminations Total Rp million Rp million Rp million
Year ended 31 December 2010
Indonesia 11,426,053 (4,113,440) 7,312,613 United States of America 572,820 – 572,820 China 562,239 – 562,239 Singapore 306,467 – 306,467 India 103,127 – 103,127 Netherlands 80,390 – 80,390 Malaysia 39,481 – 39,481 Others 507,144 – 507,144
Segment revenue 13,597,721 (4,113,440) 9,484,281
Year ended 31 December 2009
Indonesia 9,926,079 (2,925,137) 7,000,942 Singapore 475,581 – 475,581 Netherlands 428,705 – 428,705 United States of America 286,013 – 286,013 China 236,034 – 236,034 Malaysia 139,262 – 139,262 India 32,495 – 32,495 Others 441,293 – 441,293
Segment revenue 11,965,462 (2,925,137) 9,040,325
The Group’s capital expenditure and segment assets are primarily incurred and located in Indonesia. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 131
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
39. Events occurring after the reporting period
(a) On 3 January 2011, the Group has entered into agreements with related parties, among others:
(i) PT LPI and PT ISM entered into a raw materials supply agreement in connection with the supply of sugar, including molasses, which is valid until 31 December 2013. As provided in the said agreement, PT LPI is required to supply PT ISM with sugar and molasses subject to certain specifications as prescribed by PT ISM, at the price determined based on mutually agreed market selling price. (ii) Based on the amendment of the communication services agreement (VSAT facilities) with PT Primacom Interbuana (“PI”), this agreement has been extended until 31 December 2013, PI will also provide services relating to network improvements and installation of communication systems to the Group. (iii) PT SIMP and PT Fast Food Indonesia Tbk (“FFI”) entered into supply of raw materials agreement, whereby PT SIMP agreed to supply cooking oil subject to certain specifications as stipulated in the agreement by FFI. This agreement is valid from 1 January 2011 until 31 December 2013, and can be extended upon mutual agreement.
(b) On 6 January 2011, PT SIMP has fully repaid its loan from ING Singapore amounting to US$21.3 million.
(c) Based on the latest amendment to the credit agreement dated 26 January 2011, the maximum credit limit of the term loan facility obtained by PT LPI from DBS was reduced from Rp43.0 billion to become Rp35.5 billion, and the uncommitted revolving credit facilities obtained from the same bank have been extended until 4 January 2012.
(d) On 28 January 2011, a subsidiary of the Company, Lonsum, held an Extraordinary General Meeting of Shareholders, whereby its shareholders approved the stock split from the nominal value of Rp500 to become Rp100 per share, and the related increase in the number of Lonsum’s issued and fully paid shares from 1,364,572,793 shares to 6,822,863,965 shares and has been approved by the Indonesia Stock Exchange on 16 February 2011.
(e) Based on a distribution agreement between PT SIMP and Shanghai Resources International Trading Co. Ltd., China (“SRIT”) dated 14 February 2011, the latter was appointed as a distributor for the edible oil and fat products of the Company in the People’s Republic of China at the selling price based on the product price list to be determined from time to time by PT SIMP by taking into account relevant market price developments. This agreement is valid until 31 December 2011 and can be extended automatically for one year, but not exceeding 31 December 2013. 132 Increasing Our Diversity, Enhancing Our Growth
NOTES TO THE FINANCIAL STATEMENTS 31 December 2010
40. Comparative figures
a) The Amendments to FRS 17 requires the entity to assess the classification of a lease which includes both land and buildings element as a finance or an operating lease separately. The Group has previously identified the leases as operating lease. Upon adoption of the Amendments to FRS 17, the prepaid land premiums and deferred land rights acquisition costs is reclassified to property, plant and equipment. The comparative figures in respect of the previous year have been adjusted to reflect the reclassification.
Group As previously As previously As restated reported As restated reported 2009 2009 2008 2008 Rp million Rp million Rp million Rp million
Balance sheet Property, plant and equipment 5,696,726 4,223,457 4,376,429 2,963,688 Prepaid land premiums and deferred land rights acquisition costs – 1,430,347 – 1,379,286
b) Comparative figures have been restated and reclassified to conform to current year’s presentation.
Group As previously As previously As restated reported As restated reported 2009 2009 2008 2008 Rp million Rp million Rp million Rp million
Balance sheet Other non-current assets 848,691 817,811 746,694 709,420 Trade and other receivables 839,656 913,458 852,441 923,170
Statement of comprehensive income Other operating income 147,172 128,464 Other operating expenses (87,984) (69,276)
41. Authorisation of financial statements for issue
The financial statements for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the directors on 8 March 2011. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 133
INTERESTED PERSON TRANSACTIONS
Interested Person Transactions
Interested Person Transactions (“IPT’) carried out during the financial year ended 31 December 2010 pursuant to the Shareholders’ Mandate obtained under Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited by the Group are as follows:
Aggregate value of all IPT conducted under a shareholders' Name of Interested Person mandate pursuant to Rule 920 (excluding transactions less than S$100,000 Rp ’billion USD ’million
PT ISM Group
• Sales of cooking oil & margarine 2,501.9 – • Purchase of goods and services 57.1 –
Salim Group
• Sales of seeds 30.2 – • Management Fee 1.1 – • Purchases of services 22.6 – • Interest bearing loans from Salim Group to subsidiaries in which Salim Group has a 40% shareholding interest 130.5 14.4 • Interest bearing loans to subsidiaries which Salim Group has a 40% shareholding interest o Principal amount outstanding in respect of the interest bearing loans at end of year 202.1 21.6 o Maximum loan outstanding (inclusive of principal and interest) during the year 372.6 21.7 • Corporate guarantees extended in favor of banks in respect of loan facilities extended to certain subsidiaries, which Salim Group has a 40% shareholding interest o Principal amount outstanding in respect of the bank loan facilities at end of year 2,295.3 50.0 o Maximum loan outstanding (inclusive of principal and interest) during the year 2,383.4 50.3 • Rental of land 0.5 – 134 Increasing Our Diversity, Enhancing Our Growth
ESTATE LOCATION
No Company Estate Name District Province Description
1 Salim Ivomas Pratama Kayangan Rokan Hilir North Riau Oil Palm Estate Kencana Rokan Hilir North Riau Oil Palm Estate Sungai Dua Rokan Hilir North Riau Oil Palm Estate Balam Rokan Hilir North Riau Oil Palm Estate 2 Cibaliung Tunggal Plantation Cibaliung Rokan Hilir North Riau Oil Palm Estate 3 Gunung Mas Raya Sungai Rumbia 1 Rokan Hilir North Riau Oil Palm Estate Sungai Rumbia 2 Rokan Hilir North Riau Oil Palm Estate Sungai Bangko 1 Rokan Hilir North Riau Oil Palm Estate Sungai Bangko 2 Rokan Hilir North Riau Oil Palm Estate 4 Indriplant Napal Indragiri Hulu South Riau Oil Palm Estate 5 Serikat Putra Lubuk Raja Pelalawan South Riau Oil Palm Estate Bukit Raja Pelalawan South Riau Oil Palm Estate 6 Mentari Subur Abadi Muara Merang Musi Banyuasin South Sumatra Oil Palm Estate Mangsang Musi Banyuasin South Sumatra Oil Palm Estate Karang Agung Musi Banyuasin South Sumatra Oil Palm Estate Hulu Merang Musi Banyuasin South Sumatra Oil Palm Estate 7 Swadaya Bhakti Negaramas Pulai Gading Musi Banyuasin South Sumatra Oil Palm Estate 8 Sarana Inti Pratama Lindai Kampar North Riau Oil Palm Estate 9 Citranusa Intiwsawit Kedukul Sanggau West Kalimantan Oil Palm Estate 10 Kebun Ganda Prima Kembayan Sanggau West Kalimantan Oil Palm Estate 11 Riau Agrotama Plantation Nanga Silat Kapuas Hulu West Kalimantan Oil Palm Estate Kapuas Kapuas Hulu West Kalimantan Oil Palm Estate 12 Citra Kalbar Sarana Sepauk Sintang West Kalimantan Oil Palm Estate 13 Jake Sarana Sekubang Sintang West Kalimantan Oil Palm Estate 14 Agro Subur Permai Manis Kapuas Central Kalimantan Oil Palm Estate 15 Kebun Mandiri Sejahtera Mariango Pasir Utara East Kalimantan Oil Palm Estate Penajam Pasir Utara East Kalimantan Rubber Estate 16 Gunta Samba Ampanas Kutai Timur East Kalimantan Oil Palm Estate Pengadan Kutai Timur East Kalimantan Oil Palm Estate Elang Kutai Timur East Kalimantan Oil Palm Estate 17 Multi Pacific International Peridan Kutai Timur East Kalimantan Oil Palm Estate Kerayaan Kutai Timur East Kalimantan Oil Palm Estate Cipta Graha Kutai Timur East Kalimantan Oil Palm Estate Muara Bulan Kutai Timur East Kalimantan Oil Palm Estate Baay Kutai Timur East Kalimantan Oil Palm Estate 18 Mitra Inti Sejati Plantation Bengkayang Sambas West Kalimantan Oil Palm Estate 19 Hijau Pertiwi Indah Plantation Lupak Dalam Kapuas Hulu Central Kalimantan Oil Palm Estate Bunga Tanjung Kapuas Hulu Central Kalimantan Oil Palm Estate 20 Cangkul Bumi Subur Bumi Subur Musi Banyuasin South Sumatra Oil Palm Estate Bukit Indah Musi Banyuasin South Sumatra Oil Palm Estate 21 Pelangi Inti Pertiwi Mancang Musi Banyuasin South Sumatra Oil Palm Estate 22 Inti Megah Bestari Pertiwi Sungai Ampalau Musi Banyuasin South Sumatra Oil Palm Estate Megah Abadi Musi Banyuasin South Sumatra Oil Palm Estate INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 135
ESTATE LOCATION
No Company Estate Name District Province Description
23 Lonsum Dolok Batu Bara North Sumatra Oil Palm Estate Gunung Malayu Asahan North Sumatra Oil Palm Estate Begerpang Deli Serdang North Sumatra Oil Palm Estate Sei Merah Deli Serdang North Sumatra Oil Palm Estate Rambong Sialang Serdang Bedagai North Sumatra Oil Palm Estate Sibulan Serdang Bedagai North Sumatra Oil Palm & Rubber Estate Bungara Langkat North Sumatra Oil Palm Estate Turangie Langkat North Sumatra Oil Palm Estate Pulo Rambong Langkat North Sumatra Oil Palm Estate Sei Rumbiya Labuhan Batu Selatan North Sumatra Oil Palm & Rubber Estate Bah Bulian Simalungun North Sumatra Oil Palm Estate Bah Lias Simalungun North Sumatra Oil Palm, Cocoa & Coconut Estate Bukit Hijau Musi Rawas South Sumatra Oil Palm Estate Belani Elok Musi Rawas South Sumatra Oil Palm Estate Batu Cemerlang Musi Rawas South Sumatra Oil Palm Estate Ketapat Bening Musi Rawas South Sumatra Oil Palm Estate Sei Kepayang Musi Rawas South Sumatra Oil Palm Estate Gunung Bais Musi Rawas South Sumatra Oil Palm Estate Riam Indah Musi Rawas South Sumatra Oil Palm Estate Sei Lakitan Musi Rawas South Sumatra Oil Palm Estate Sei Gemang Musi Rawas South Sumatra Oil Palm Estate Terawas Indah Musi Rawas South Sumatra Oil Palm Estate Tulung Gelam Ogan Komering Ilir South Sumatra Rubber Estate Kubu Pakaran Ogan Komering Ilir South Sumatra Rubber Estate Bebah Permata Ogan Komering Ilir South Sumatra Rubber Estate Tirta Agung Musi Banyuasin South Sumatra Oil Palm Estate Budi Tirta Musi Banyuasin South Sumatra Oil Palm Estate Suka Damai Musi Banyuasin South Sumatra Oil Palm Estate Sei Punjung Musi Banyuasin South Sumatra Oil Palm Estate Arta Kencana Lahat South Sumatra Oil Palm Estate Kencana Sari Lahat South Sumatra Oil Palm Estate Kertasarie Bandung West Java Tea Estate Treblasala Banyuwangi East Java Cocoa & Coconut Estate
Isuy Makmur Kutai Barat East Kalimantan Oil Palm Estate
Pahu Makmur Kutai Barat East Kalimantan Oil Palm Estate
Balombissie Bulukumba South Sulawesi Rubber Estate
Palang Isang Bulukumba South Sulawesi Rubber Estate
Pungkol Minahasa North Sulawesi Cocoa & Coconut Estate
24 Lajuperdana Indah Komering Sugar Ogan Komering Ulu Timur South Sumatra Sugar Cane 136 Increasing Our Diversity, Enhancing Our Growth
STATISTICS OF SHAREHOLDINGS As at 15 March 2011
Distribution Of Shareholdings
Number of Size Of Shareholdings Shareholders % Number of Shares* %
1 - 999 377 6.71 109,067 0.01 1,000 - 10,000 4,117 73.23 20,127,333 1.39 10,001 - 1,000,000 1,111 19.76 49,869,318 3.44 1,000,001 And Above 17 0.30 1,377,677,112 95.16
Total 5,622 100.00 1,447,782,830 100.00
* Based on total number of issued shares. No treasury shares were held.
Twenty Largest Shareholders
No. Name Number of Shares %**
1 Kim Eng Securities Pte. Ltd. 1,000,601,000 69.11 2 Citibank Nominees Singapore Pte Ltd 95,815,014 6.62 3 HSBC (Singapore) Nominees Pte Ltd 83,327,144 5.76 4 Dbs Nominees Pte Ltd 64,808,257 4.48 5 Dbsn Services Pte Ltd 39,890,313 2.76 6 United Overseas Bank Nominees Pte Ltd 30,695,510 2.12 7 Raffles Nominees (Pte) Ltd 29,680,187 2.05 8 Uob Kay Hian Pte Ltd 8,464,400 0.58 9 Ocbc Securities Private Ltd 4,640,315 0.32 10 Morgan Stanley Asia (Singapore) Securities Pte Ltd 4,497,883 0.31 11 Bnp Paribas Securities Services Singapore 2,719,000 0.19 12 Phillip Securities Pte Ltd 2,389,605 0.17 13 Dbs Vickers Securities (S) Pte Ltd 2,361,750 0.16 14 Db Nominees (S) Pte Ltd 2,277,734 0.16 15 Royal Bank Of Canada (Asia) Ltd 2,219,000 0.15 16 Cimb Securities (Singapore) Pte Ltd 1,850,000 0.13 17 Capital Intelligence Limited 1,440,000 0.10 18 Primevest Holdings Pte Ltd 1,000,000 0.07 19 Merrill Lynch (Singapore) Pte Ltd 955,072 0.07 20 Meryani 900,000 0.06
Total 1,380,532,184 95.37
** Percentage is calculated based on total number of issued shares. No treasury shares were held. INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 137
STATISTICS OF SHAREHOLDINGS As at 15 March 2011
List Of Substantial Shareholders’ Interests
Direct Interest Deemed Interest Number of Shareholding Number of Shareholding Name of Substantial Shareholder shares held % ** shares held % **
Indofood Singapore Holdings Pte. Ltd. (“ISHPL”) 998,200,000 68.95% – – PT Indofood Sukses Makmur Tbk (“PT ISM”)(1) – – 998,200,000 68.95% Lapu-Lapu Holdings Limited (“Lapu-Lapu”)(2) – – 998,200,000 68.95% CAB Holdings Limited (“CAB”)(2) – – 998,200,000 68.95% First Pacific Company Limited (“First Pacific”)(3) – – 998,200,000 68.95% First Pacific Investments Limited (“FPIL”)(4) 1,125,344 0.08% 998,200,000 68.95% First Pacific Investments (B.V.I.) Limited (“FPIL BVI”)(4) 882,444 0.06% 998,200,000 68.95% Salerni International Limited (“Salerni”)(5) – – 1,000,207,788 69.09% Anthoni Salim(6) – – 1,000,207,788 69.09%
Notes:
** Percentage is calculated based on total number of issued shares. No treasury shares were held by the Company.
(1) PT ISM is a holding company of ISHPL with an interest of approximately 83.84% of the total number of issued shares in ISHPL. Accordingly, PT ISM is deemed to be interested in the Shares held by ISHPL.
(2) Lapu-Lapu, together with its associate, CAB, collectively own not less than 20% of the issued share capital of PT ISM. Accordingly, Lapu-Lapu and CAB are deemed to be interested in the Shares held by ISHPL.
(3) First Pacific owns 100% of the issued share capital of CAB and Lapu-Lapu respectively. Accordingly, First Pacific is deemed to be interested in the Shares held by ISHPL.
(4) FPIL, together with FPIL BVI, collectively own not less than 20% of the issued share capital of First Pacific. Accordingly, FPIL and FPIL BVI are deemed to be interested in the Shares held by ISHPL.
(5) Salerni owns more than 50% of the issued share capital of FPIL BVI. Accordingly, Salerni is deemed to be interested in the Shares held by ISHPL, FPIL and FPIL BVI.
(6) Mr Anthoni Salim owns 100% of the issued share capital of Salerni. Accordingly, Mr Anthoni Salim is deemed interested in the Shares held by ISHPL, FPIL and FPIL BVI.
PUBLIC FLOAT
Based on the information available to the Company as at 15 March 2011, approximately 30.9% of the issued ordinary shares of the Company is held by the public. Therefore, the public float requirement under Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading Limited is complied with. 138 Increasing Our Diversity, Enhancing Our Growth
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Swissôtel Merchant Court Singapore, Merchant Court Ballroom, Section A, 20 Merchant Road, Singapore 058281 on Thursday, 28 April 2011 at 4.00 p.m., to transact the following business:
AS ORDINARY BUSINESS
1. To receive and adopt the Directors’ Report and Accounts for the year ended 31 December 2010 and the Auditors' Report thereon. [Resolution 1]
2. To approve the Directors’ Fees of S$325,000 (2009: S$285,000) for the year ended 31 December 2010. [Resolution 2]
3. To re-elect the following Directors, who retire under Article 117 of the Company’s Articles of Association:-
a) Mr Tjhie Tje Fie [Resolution 3a] b) Mr Moleonoto Tjang [Resolution 3b] c) Mr Gunadi [Resolution 3c] d) Mr Lee Kwong Foo Edward [Resolution 3d]
4. To re-appoint Messrs Ernst & Young LLP as the Company’s Auditors and to authorise the Directors to fix their remuneration. [Resolution 4]
AS SPECIAL BUSINESS
To consider and, if thought fit, pass the following Resolutions Nos. 5 to 8 as Ordinary Resolutions:
5. That authority be and is hereby given to the directors of the Company to:
(i) (aa) issue shares in the Company (“Shares”) whether by way of rights, bonus or otherwise; and/or
(bb) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require Shares to be issued during the continuance of this authority or thereafter, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Shares,
at any time and upon such terms and conditions and for such purposes and to such persons as the directors may, in their absolute discretion, deem fit; and
(ii) issue Shares in pursuance of any Instrument made or granted by the directors while such authority was in force (notwithstanding that such issue of Shares pursuant to the Instruments may occur after the expiration of the authority contained in this resolution),
Provided that:
(iii) the aggregate number of the Shares to be issued pursuant to such authority (including the Shares to be issued in pursuance of Instruments made or granted pursuant to such authority), does not exceed 50% of the total number of issued Shares (as calculated in accordance with paragraph (iv) below), and provided further that where shareholders of the Company (“Shareholders”) are not given the opportunity to participate in the same on a pro-rata basis (“non pro-rata basis”), then the Shares to be issued under such circumstances (including the Shares to be issued in pursuance of Instruments made or granted pursuant to such authority) shall not exceed 20% of the total number of issued Shares (as calculated in accordance with paragraph (iv) below); INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 139
NOTICE OF ANNUAL GENERAL MEETING
(iv) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (the “SGX-ST”)) for the purpose of determining the aggregate number of the Shares that may be issued under paragraph (iii) above, the total number of issued Shares shall be based on the total number of issued Shares of the Company (excluding treasury shares) at the time such authority was conferred, after adjusting for:
(aa) new Shares arising from the conversion or exercise of any convertible securities;
(bb) new Shares arising from exercising share options or the vesting of share awards which are outstanding or subsisting at the time such authority was conferred; and
(cc) any subsequent bonus issue, consolidation or subdivision of the Shares;
and, in relation to an Instrument, the number of Shares shall be taken to be that number as would have been issued had the rights therein been fully exercised or effected on the date of the making or granting of the Instrument; and
(v) (unless revoked or varied by the Company in general meeting), the authority so conferred shall continue in force until the conclusion of the next annual general meeting of the Company or the date by which the next annual general meeting of the Company is required by law to be held, whichever is the earlier. [Resolution 5]
6. The proposed renewal of the shareholders’ mandate on Interested Person Transactions
“That approval be and is hereby given, for the purposes of Chapter 9 of the Listing Manual of the SGX-ST, for the Company, its subsidiaries and associated companies (if any) that are entities at risk (as the term is used in Chapter 9), or any of them, to enter into any of the transactions falling within the types of Interested Person Transactions set out in the Company’s Addendum to Shareholders dated 5 April 2011 (being an addendum to the Annual Report of the Company for the financial year ended 31 December 2010) (the “Addendum”) with any party who is of the class of Interested Persons described in the Addendum provided that such transactions are made at arm’s length, on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders and are in accordance with the review procedures for such Interested Person Transactions as set out in the Addendum (the “Shareholders’ Mandate”);
That the Shareholders’ Mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the next annual general meeting of the Company is held or is required by law to be held, whichever is the earlier;
That the Audit Committee of the Company be and is hereby authorized to take such action as it deems proper in respect of procedures and/or to modify or implement such procedures as may be necessary to take into consideration any amendment to Chapter 9 of the Listing Manual of the SGX-ST which may be prescribed by the SGX-ST from time to time; and
That the directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to the Shareholders’ Mandate and / or this Resolution.” [Resolution 6]
7. The proposed renewal of the Share Purchase Mandate
That:
(a) for the purposes of Sections 76C and 76E of the Companies Act, Chapter 50 (the Companies Act”), the exercise by the directors of the Company of all the powers of the Company to purchase or otherwise acquire issued and fully paid ordinary shares in the Company (the “Shares”) not exceeding in aggregate the Prescribed Limit (as hereinafter defined), at such price or prices as may be determined by the directors of the Company from time to time up to the Maximum Price (as hereinafter defined), whether by way of:
(i) market purchases (each a “Market Purchase”) on the Singapore Exchange Securities Trading Limited (“SGX-ST”); and/or 140 Increasing Our Diversity, Enhancing Our Growth
NOTICE OF ANNUAL GENERAL MEETING
(ii) off-market purchases (each an “Off-Market Purchase”) effected otherwise than on the SGX-ST in accordance with any equal access scheme(s) as may be determined or formulated by the directors of the Company as they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the Companies Act,
and otherwise in accordance with all other laws, regulations and listing rules of the SGX-ST as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the “Share Purchase Mandate”);
(b) unless varied or revoked by the Company in general meeting, the authority conferred on the directors of the Company pursuant to the Share Purchase Mandate in paragraph (a) of this Resolution may be exercised by the directors of the Company at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earliest of:
(i) the date on which the next annual general meeting of the Company is held; or
(ii) the date by which the next annual general meeting of the Company is required by law to be held; or
(iii) the date on which purchases or acquisitions of Shares are carried out to the full extent mandated;
(c) in this Resolution:
“ Prescribed Limit” means, subject to the Companies Act, 10% of the total number of issued Shares of the Company (excluding any Shares which are held as treasury shares) as at the date of the passing of this Resolution; and
“ Maximum Price”, in relation to a Share to be purchased, means an amount (excluding brokerage, stamp duties, applicable goods and services tax and other related expenses) not exceeding:
(i) in the case of a Market Purchase, 105% of the Average Closing Price (as defined hereinafter); and
(ii) in the case of an Off-Market Purchase, 110% of the Average Closing Price (as defined hereinafter),
where:
“ Average Closing Price” means the average of the Closing Market Prices of the Shares over the last five Market Days on the SGX-ST, on which transactions in the Shares were recorded, immediately preceding the day of the Market Purchase or, as the case may be, the date of the making of the offer pursuant to the Off-Market Purchase, and deemed to be adjusted for any corporate action that occurs after such five-Market Day period;
“ Closing Market Price” means the last dealt price for a Share transacted through the SGX-ST’s Quest-ST system as shown in any publication of the SGX-ST or other sources;
“ date of the making of the offer” means the day on which the Company announces its intention to make an offer for the purchase or acquisition of Shares from shareholders of the Company, stating the purchase price (which shall not be more than the Maximum Price calculated on the foregoing basis) for each Share and the relevant terms of the equal access scheme for effecting the Off-Market Purchase; and
“ Market Day” means a day on which the SGX-ST is open for trading in securities; and INDOFOOD AGRI RESOURCES LTD. Annual Report 2010 141
NOTICE OF ANNUAL GENERAL MEETING
(d) the directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they may consider expedient or necessary to give effect to the transactions contemplated by this Resolution. [Resolution 7]
8. To transact any other business.
By Order of the Board
MAK MEI YOOK LEE SIEW JEE, JENNIFER Company Secretaries
Singapore Date: 5 April 2011 142 Increasing Our Diversity, Enhancing Our Growth
NOTICE OF ANNUAL GENERAL MEETING
Note: A member is entitled to appoint not more than two proxies to attend and vote in his place. A proxy need not be a Member of the Company. Members wishing to vote by proxy at the Meeting may use the proxy form enclosed. To be valid, the completed proxy form must be lodged at the registered office of the Company at 8 Eu Tong Sen Street, #16-96/97 The Central, Singapore 059818 not less than 48 hours before the time appointed for holding the Meeting.
EXPLANATORY NOTE TO RESOLUTION 3a: Mr Tjhie Tje Fie is a Non-Executive Director of the Company. He is a member of the Remuneration Committee and Nominating Committee. He will, upon re-election, continue to serve as a member of each of the Remuneration and Nominating Committees.
EXPLANATORY NOTE TO RESOLUTION 3b: Mr Moleonoto Tjang is an Executive Director of the Company. He will, upon re-election, continue to serve as a member of the Board.
EXPLANATORY NOTE TO RESOLUTION 3c: Mr Gunadi is an Executive Director of the Company. He will, upon re-election, continue to serve as a member of the Board.
EXPLANATORY NOTE TO RESOLUTION 3d: Mr Lee Kwong Foo Edward is an Independent Director. He is also the Chairman of the Board and the Chairman of the Nominating Committee of the Company. He will, upon re-election, continue to serve as the Chairman of the Board and the Chairman of the Nominating Committee.
EXPLANATORY NOTES ON SPECIAL BUSINESS TO BE TRANSACTED: The ordinary resolution proposed in item (5) above if passed will empower the directors of the Company from the date of the above Meeting until the next Annual General Meeting, to issue shares and convertible securities in the Company up to an amount not exceeding in total 50 per centum of the total number of issued shares in the capital of the Company calculated on the basis set out in the said resolution. For issues of shares and convertible securities other than on a pro rata basis to all Shareholders, the aggregate number of shares and convertible securities to be issued shall not exceed 20 per centum of the total number of issued shares in the capital of the Company calculated on the basis set out in the said resolution. This authority will, unless previously revoked or varied at a general meeting, expire at the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier .
Shareholders should note that presently, the controlling shareholders of the Company include First Pacific Company Limited and PT Indofood Sukses Makmur Tbk, which are listed on the Hong Kong Stock Exchange Limited and the Indonesia Stock Exchange (Bursa Efek Indonesia), respectively. Prior to any exercise of the authority conferred upon them by the ordinary resolution in item (5) above, the directors of the Company intend to take into account, inter alia, any approval that may be required from any such controlling shareholders and/or their respective shareholders and/or from such stock exchanges.
For practical reasons and in order to avoid any violation of the securities legislation applicable in countries other than Singapore, the offering documents for the issue of shares and Instruments pursuant to such authority may NOT be despatched to Shareholders with registered addresses outside Singapore as at the applicable books closure date and who have not, by the stipulated period prior to the books closure date, provided to The Central Depository (Pte) Limited or the Share Registrar, as the case may be, with addresses in Singapore for the service of notices and documents.
The ordinary resolution proposed in item (6) above if passed will empower the directors of the Company to enter into Interested Person Transactions approved by the Shareholders’ Mandate. Such authority will, unless revoked or varied by the Company in general meeting, continue in force until the next Annual General Meeting of the Company and Shareholders’ approval will be sought for its renewal at every Annual General Meeting of the Company.
The ordinary resolution proposed in item (7) above if passed will empower the directors of the Company to make purchases (whether by way of market purchases or off-market purchases on an equal access scheme) from time to time of up to 10 per centum of the total number of issued Shares as at the date of the above Meeting at the price up to but not exceeding the Maximum Price (as defined in the Resolution). The rationale for the Share Purchase Mandate, the source of funds to be used for the Share Purchase Mandate, the impact of the Share Purchase Mandate on the Company’s financial position, the implications arising as a result of the Share Purchase Mandate under The Singapore Code on Take-overs and Mergers and on the listing of the Company’s Shares on the SGX-ST, as well as the number of Shares purchased by the Company in the previous twelve months are set out in the Addendum. PROXY FORM
INDOFOOD AGRI RESOURCES LTD. (Company Registration No. 200106551G) (Incorporated in the Republic of Singapore)
IMPORTANT
1. For investors who have used their CPF moneys to buy shares of Indofood Agri Resources Ltd., this Annual Report is forwarded to them at the request of their CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.
2. This Proxy Form is not valid for use by CPF Investors and shall be ineffective for all intents and purposes if used or purported to be used by them.
3. CPF Investors who wish to vote should contact their CPF Approved Nominees.
I/We of being a *member/members of Indofood Agri Resources Ltd., hereby appoint
NRIC/Passport Proportion of Name Address Number shareholdings (%)
and/or (delete as appropriate)
failing him/her, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on Thursday, 28 April 2011 at 4.00 p.m., and at any adjournment thereof.
The proxy is required to vote as indicated with an "X" on the resolutions set out in the Notice of Meeting and summarised below. If no specific direction as to voting is given, the proxy/proxies may vote or abstain at his discretion.
No. Resolution For Against
1. To receive and adopt the Directors' Report and Accounts for the year ended 31 December 2010.
2. To approve the Directors’ Fees of S$325,000 (2009: S$285,000/-) for the year ended 31 December 2010.
3a. To re-elect Mr Tjhie Tje Fie as Director, who retires under Article 117 of the Company’s Articles of Association.
3b. To re-elect Mr Moleonoto Tjang as Director, who retires under Article 117 of the Company’s Articles of Association.
3c. To re-elect Mr Gunadi as Director, who retires under Article 117 of the Company’s Articles of Association.
3d. To re-elect Mr Lee Kwong Foo Edward as Director, who retires under Article 117 of the Company’s Articles of Association.
4. To re-appoint Messrs Ernst & Young LLP as the Company’s Auditors and to authorise the Directors to fix their remuneration.
5. To approve the general mandate for issues of shares.
6. To renew the Shareholders’ Mandate on Interested Person Transactions.
7. To renew the Share Purchase Mandate.
Signed this day of 2011
Signature(s) of Member(s)/Common Seal Notes: a) Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion (expressed as a percentage of the whole) of his shareholding to be represented by each proxy. b) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if such appointor is a corporation, under its common seal or under the hand of its attorney. c) An instrument appointing a proxy must be deposited at the registered office of the Company at 8 Eu Tong Sen Street, #16-96/97 The Central, Singapore 059818 not less than 48 hours before the time appointed for holding the meeting. d) The Company shall be entitled to reject a Proxy Form which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified on the Proxy Form. In addition, in the case of shares entered in the Depository Register, the Company may reject a Proxy Form if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company. This annual report is printed on Enviro Wove, an environmentally friendly paper made up of
100% recycled post-consumer waste. The paper’s production and quality management system has also been accredited with ISO9001 and ISO14001 certifications. 8 Eu Tong Sen Street, #16-96/97 The Central, Singapore 059818 Company Reg. No. 200106551G a subsidiary of: