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Announcement:

Moody's: Recovering palm oil price provides strong finish to Golden Agri's year of refocus

03 Mar 2014

Singapore, March 03, 2014 -- Golden Agri-Resources Ltd. (GAR, Ba2 stable) released its results for 2013 on Friday. While reported EBITDA of $662 million was 15.7% lower than the $785 million achieved in 2012, and gross debt increased over the year from $1.85 billion to reach in $2.58 billion in December 2013, there is no immediate impact on the rating.

The average CPO market price for the year was 17% lower than in 2012 at $797/tonne (t), fresh fruit bunch (FFB) production was 6.7% lower, but revenue nevertheless increased by 8.8% assisted by the expanded downstream operations and a 6% increase in revenues from the China operations. There were year on year improvements in revenue in Q2 and Q4 2014 of over 25%, even as FFB production was down year on year by 10.8% and 6.6%, respectively, in those quarters. Profits were similarly volatile; in H1 2013, the average CPO price was broadly flat at $795/t with reported EBITDA of $211 million in Q1 but only $140 million achieved in Q2. In Q3 the CPO price fell to $769/t taking reported EBITDA down to $111 million before a recovery in the CPO price to $831/t in Q4 which, coupled with an increase of 14.7% in FFB output over Q3 2013, lifted Q4 EBITDA to $200 million.

"2013 was GAR's first full year of implementing its revised strategy as it added to its downstream refining and marketing, and trading operations, and this resulted, as expected, in lower EBITDA margins," says Alan Greene, a Moody's Vice President -- Senior Credit Officer.

"During the year, GAR added 300,000 tonne per annum of refining capacity in Indonesia and further kernel crushing capacity such that plantation output and refining capacity are now broadly balanced at 2.3 million tonne per annum. However, the contribution from the additional downstream capacity could not offset the decline in CPO prices and output," adds Greene, who is Lead Analyst for GAR.

After planting 5,600 hectares in H1 2013, and 8,100 ha in H2 2013, GAR's planted area has increased by a net 1.66% since December 2012 and stands at 471,100ha. For the moment Golden Agri's plantation maturity profile is holding at around an average age of 13 years but the age distribution is changing. The portion of trees younger than 7 years has declined from 34% at the end of FY2011 to 26% at the end of 2013, while the portion older than 18 years has increased from 22% at the end of FY2011 to 27% at the end of 2013. Meanwhile the acquisition of 16,000ha of plantation from a company in Indonesia, has yet to be completed.

This relatively weak set of quarterly results brings GAR closer to the triggers that might indicate a downgrade but there is no immediate pressure on the rating. CPO prices have picked up sharply in 2014 (+8.8% year to date in Ringgit) and the performance of GAR's Chinese edible oil and snack food operation, where competition and price controls have limited profits, nevertheless showed a sharp improvement in Q4 2013, albeit a small part of the overall GAR business.

GAR continues to invest heavily in downstream activities such as logistics and refining as well as increasing its plantation holdings, with capex of $550 million projected for 2014. This follows capex of $519 million in 2013, the bulk of which went on Indonesian downstream and related facilities. Profit after tax was 24% lower at $316 million and despite a rise in the payout ratio to 35%, the proposed final dividend is reduced by 12.7% in cash terms.

In addition to expanding its plantation area in Indonesia, GAR is also expanding overseas. The largest increase in plantation area is likely to be in Liberia where GAR is invested through The Verdant Fund LP. This vehicle holds a licence to develop up to 220,000 ha; the process taking some twenty years to complete. GAR carries this investment as a long-term investment on its balance sheet and after a net investment of $171 million in 2013, the balance stands at $675 million.

The investment and weaker cash generation has impacted debt levels and GAR tapped its sukuk program twice in 2013. At the same time, it is drawing heavily on short-term, predominantly secured, borrowings. Short-term debt at the year end was $1,060 million up from $602 million as of June 2103 and $434 million at the end of 2012, while cash and short-term investments declined from $685 million at the end of 2012 to $587 million as of December 2013.

"Moody's expects palm oil prices to remain well-supported given weak production in recent months and the seasonal weakness in H1 and this should underpin GAR's revenues, but much will depend on the demand-supply balance in Q3 which sees seasonally strong production - assuming normal weather patterns", adds Greene.

"However, Moody's will closely monitor balance sheet developments and watch for rising leverage and weakening liquidity trends as both investment in fixed assets and working capital increase to support the build-out of the value chain," continues Greene.

Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's: Recovering palm oil price provides strong finish to Golden Agri's year of refocus
No Related Data.
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