Management Discussion and Analysis
  • Review & Analysis of Financial Performance by Segment


    Chemical Industry


    Parent Company

    PT Unggul Indah Cahaya Tbk (UIC)

    UIC has three production units of Alkylbenzene (AB) with a production capacity of 270,000 MT per year consisting of 180,000 MT Linear Alkylbenzene (LAB) and 90,000 MT Branched Alkylbenzene (BAB).

    Production Process: Normal Paraffin converted to Olefin are reacted with Benzene using HF Acid as catalyst.

    The movement of crude oil prices were stable and tended to increase throughout 2017, making the average selling prices of products and raw material prices in 2017 increased compared to 2016.

    Production of AB and its by product in 2017 increased by 4.95% compared to 2016, as well as sales volume in 2017 increased by 5.62% compared to previous year.The sales value in 2017 increased by 12.76%, where value in 2017 was recorded USD 226.86 million and in 2016 was recorded USD 201.18 million.

    Along with the increase in sales, cost of good sold in 2017 increased by 12.61% from that those recorded in 2016 amounted USD 178.81 million to USD 201.36 million.

    Total operating expenses in 2017 also increased by 14.11% compared to 2016, from which recorded USD 8.27 million to USD 9.44 million. Thus in 2017, UIC recorded operating profit of USD 16.06 million increased by 13.93% compared operating profit in 2016 which was recorded at USD 14.10 million.

    Profit before income tax of 2017 increased by 26.68% compared to 2016 which was recorded USD 13.38 million to USD 16.96 million. The increase was mainly due to lower finance costs and rose of foreign exchange gain in 2017.

    Profit for the year (net profit) in 2017 was recorded at USD 11.76 million, decreased by 50.24% compared to net profit in 2016 which was recorded USD 23.64 million, this decrease is due to in 2016 UIC recorded deferred income tax benefit-net, whereas in 2017, UIC recorded deferred income tax expenses-net. The significant deferred income tax benefit in 2016 arises from the implementation of package V economic policy in form of tax incentives for the Revaluation of Fixed Assets (RAT). The deferred tax benefits recorded from the RAT amounted to USD 13.61 million, after deducted by final tax of RAT amounted USD 1.86 million.


    Subsidiaries

    PT Petrocentral (Petrocentral)

    The Company has 61.72% shares ownership in Petrocentral.

    Petrocentral is a subsidiary operating in Gresik, East Java and the sole producer of Sodium Tripolyphosphate (STPP) in Indonesia with an installed production capacity 50,000 MT per year. STPP is one of the raw materials of detergent, which functioned as water softener, thereby increasing the cleaning power of detergent.

    For its consistency in maintaining its product quality, Petrocentral has succeeded in achieving ISO 9001:2008 for Quality Management System issued by Standard Assurance and Innovation (SAI) Global Limited and The International Certification Network (IQNet) since 2004.

    Great incentives provided by the Government of China to their domestic producers to export their products, had caused domestic market filled with products from China. The raw material prices that are relatively high and the lack of protection from Indonesian government to protect domestic producers, had caused Petrocentral's selling price can not compete with imported products.

    In 2017, the China government promote environmental preservation that caused many STPP plants in China should improve its production processes in order to reduce environmental pollution. During these period, China's domestic STPP production is slowing down as well as their export to Indonesia market. In addition, management back to back contract policy supported by the main supplier of raw materials and customers, has increased Petrocentral production and meet the domestic market demand.

    In 2017, Petrocentral managed to increase its production by 119.52% compared to production in 2016 and can increase its sales volume by 125.10% compared to the previous year. Petrocentral sales value in 2017 was recorded USD 30.55 million, increase of 110.08% compared to sales value in 2016 which was recorded at USD 14.54 million.

    Thus in 2017, Petrocentral was booked gross profit of USD 1.61 million increased 241.45% compared to gross loss in 2016 which was recorded at USD 1.14 million. Gross Profit Margin for the year 2017 was 5,26%. Petrocentral recorded profit before tax of USD 0.22 million in 2017, an increase of 108.45% from the previous in 2016 recorded a loss before tax of USD 2.63 million.

    Therefore in 2017, Petrocentral recorded net profit of USD 0.11 million while in 2016 recorded net loss of USD 2.47 million.


    UIC Vietnam Co., Ltd. (UICV)

    The Company has 100% shares ownership in UICV.

    UICV has a factory located in Dong Nai, Vietnam and engages in production and distribution of Linear Alkylbenzene Sulphonic Acid (LABSA) and Sodium Lauryl Ether Sulphate (SLES) with installed production capacity of 30,000 MT per year. LABSA is an active component in almost all powder and liquid detergent. LABSA is also a main component of shampoo and liquid soap, as well as a diluting material in pharmacy industry.

    UICV's commitment in customer satisfaction by providing high quality product is reflected in the renewal of the ISO 9001:2008.

    In 2017, sales volume of UICV decreased by 4.76% compared to 2016. This is due to tight competition with the imported product from China which are entering the market as well as the increase of production capacity of similar factory in Vietnam. However, selling price increases has pushed sales value in 2017 increased by 5.88% from USD 20.58 million in 2016 to USD 21.79 million.

    UICV's gross profit in 2017 was recorded USD 1.05 million, decreased by 50.47% compared to 2016 gross profit of USD 2.13 million. The decline was mainly due to the increased of selling price in 2017 that can not covered the rose of raw material prices, and led to increased cost of goods sold.

    Therefore in 2017, UICV was recorded net profit amounted USD 0.08 million, decreased by 91.61% compared to 2016 net profit of USD 0.98 million.


    Universal Interchemicals Corp. Pte., Ltd. (UICPL)

    The Company has 100 % shareholding in UICPL.

    UICPL is the Company's subsidiary located in Singapore with registered Company Number 199100093N. UICPL is the trading agent for chemical materials and spare parts for UIC Group. UICPL has 100% shareholding in AWAL, a Company's subsidiary located in Australia which involves in Surfactant manufacturing and Phosphate trading.

    In 2017, gross profit margin of UICPL stood at 2.65% lower than gross profit margin in 2016 which stood at 3.46%. In 2017, UICPL recorded net amounted USD 117.55 thousand, while in 2016 recorded net profit amounted USD 102.43 thousand, experienced an increase by 14.76%, the increased in net profit was mainly due to a decrease in non-operating expenses and also a decrease in income tax 2017.


    Albright & Wilson (Australia) Limited (AWAL)

    UICPL has 100% shares ownership in Albright & Wilson (Australia) Limited.

    AWAL is a manufacturer of Surfactant product line, raw material for detergent and indirect raw material for concrete and plasterboard additive. These products are applied in such industries such as personal care, paper, shampoo, mining and mineral processing, medicines, fertilizer, building and water treatment. Beside that, AWAL is also involved in chemical trading activities such as a series of Phosphate products.

    AWAL owns 100% shares of Albright & Wilson New Zealand, a trading company which provides marketing and warehouse facilities for AWAL products in New Zealand.

    AWAL owns a plant that producing Surfactant products in Wetherill Park-New South Wales. The plant has achieved ISO 9001:2008 certification. Sales, marketing and warehouse facilities are located in Brisbane, Melbourne, Perth and Sydney. AWAL also doing sales and marketing activities of Phosphate products that meet AWAL's specifications, by collaborating with Petrocentral and also some other manufacturers.

    AWAL sales value in 2016 was recorded at USD 55.94 million, increased by 1.25% compared to the sales value in 2015 which was recorded at USD 55.25 million. AWAL's gross profit was decreased to US 0.07 million or 0.86% from USD 8.64 million in 2015 to USD 8.57 million. Gross profit margin 2016 stood at 15.31% whereas gross profit margin 2015 was 15.64%.


    Property Industry

    In addition to chemical industry, the Company also expands its business into property industry, which is managed by 2 (two) subsidiary companies:


    PT Unggul indah investama (UII)

    The Company's has 99,99% shares ownership in UII.

    UII is a holding company that was established in 1996 to accommodate the Company's plan to participate in PT Wiranusa Grahatama (WG), a joint venture company in developing an office and apartment building complex.

    The Company owned 99.99% of UII shares. Since 2005, UII became a major Shareholders of WG with 55% share ownership. Since May 2012, UII is also acting as trader for UIC.


    PT Wiranusa Grahatama (WG)

    UII has 55% of shares ownership in WG

    WG is a subsidiary which develops office and apartment building complex on its 3.2 hectares of land located in the main business district of Jakarta in Jl. Jend. Gatot Subroto. Pearl Garden Apartment Complex which was built since the end of 2004 has 235 units of apartment on 1.7 hectares land with low-rise apartment concept.

    WG still has 1.4 hectares land which is intended for future office and residential complex development with high-rise building concept. In 2017 WG recorded revenues of IDR 11.62 billion, increased by of 3.76% compared to revenues in 2016 which was recorded at IDR 11.20 billion.

    WG recorded gross losses both in 2017 and 2016 respectively IDR 2.25 billion.

    Operating expenses in 2017, recorded at IDR 5.21 billion, a decrease compared to the operating expenses in 2016 which was recorded at IDR 5.90 billion.

    Financial costs of 2017 decreased by 16.98% from in 2016 was recorded at IDR 17.04 million to IDR 14.15 million. This decrease was primarily from the decrease in loan interest expenses in relation with the repayment of partial loans in 2017.

    Therefore, loss before tax in 2017 decreased by 14.17% from loss before tax in 2016 which was recorded at IDR 25.19 billion to IDR 21.62 billion in 2017. Whereas net loss for 2017 was recorded at IDR 19.94 billion decreased compared to net loss of 2016 which was recorded at IDR 23.34 billion.

    In 2017 WG increased its issued and paid up capital from which was recorded in 2016 at IDR 25.56 billion to IDR 135.84 billion. This capital increase was made by WG Shareholders by capital deposit of IDR 90 billion and the remaining IDR 20.28 billion through convertible bond conversion.


    Consolidated Financial Statements

    Consolidated Statement of Comprehensive Income

    Amid the global economic recovery continues, the national economy growth that began to improve and the crude oil prices that also was more stable and tend to to increase as well as the strategies implemented by management has driven the Company's performance in 2017 perform well.

    In 2017, the Company recorded consolidated sales value of USD 320.55 million, an increase of 16.09% or USD 44.44 million compared to the consolidated sales value of 2016 which was recorded at USD 276.11 million.

    Along with the increase in sales, cost of goods sold in 2017 also increased by 16.38% or USD 39.63 million from the previous in 2016 was recorded at USD 241.87 million to USD 281.49 million.

    In 2017, the Company recorded gross profit of USD 39.06 million, an increase of 14.05% compared to that recorded in 2016 of USD 34.25 million. At the end of 2017, the Company recorded gross margin stood at 12.18%, lower than the gross profit margin of 2016 that stood at 12.40%.

    In 2017, the Company's operating expenses increased slightly by 3.47% compared to 2016. Thus, in 2017, the Company recorded operating profit of USD 18.43 million, an increase of 28.80% compared to operating profit in 2016 which was recorded at USD 14.31 million.

    Profit before tax in 2017 increased by USD 6.25 million from the previously in 2016 was recorded USD 11.41 million to USD 17.65 million in 2017. At end of 2016 the Company recorded deferred income tax benefit-net USD 9.72 million, its primarily arising from the Company's participation in the economic policy package V in form of tax incentives for Revaluation of Fixed Assets. The deferred tax benefit recorded from RAT is USD 13.61 million, net of final tax on Revaluation of Fixed Assets of USD 1.86 million. In 2017 the Company recorded income tax expense of USD 5.72 million.

    Thereby in 2017, the Company recorded profit for the year attributable to equity holders of the parent amounted to USD 12.56 million, a decrease of USD 10.30 million or 45.05% compared to profit for the year attributable to equity holders of the parent of 2016 which was recorded at USD 22.85 million. While loss for the year attributable to non controlling interests decreased by 63.81% from the previously in 2016 was recorded loss of USD 1.73 million to loss of USD 0.63 million in 2017.

    The consolidated EBITDA (Earning before Interest, Taxes, Depreciation and Amortization) for 2017 is USD 23.91 million, while consolidated EBITDA for year 2016 was USD 19.74 million, an increase of 21.15%. As of December 31, 2017, the ratio of EBITDA to net interest expense ratio is 19.8:1, while the ratio of interest-bearing liabilities net of cash and cash equivalents to total equity is 0.12:1 The ratios meet the ratio required by the bank creditor of the Company. As of December 31, 2016, the Company was also in compliance to the ratios required by the bank creditor.


    Consolidated Statement of Financial Position

    Assets

    Consolidated current assets as of December 31, 2017 amounted to USD 154.87 million, decreased by 1.48% compared to consolidated current assets as at 31 December 2016 amounting to USD 152.61 million. Most of current assets were inventories and accounts receivable, which were 85.46% and 86.66% for 2017 and 2016, respectively.

    Meanwhile, non-current assets in 2017 was recorded at USD 68.88 million, decreased by 7.31% compared to last year which stood at USD 74.31 million, the decrease was mainly because the Company received income tax refund from the tax office on the overpayment of 2016 amounted USD 3.2 million and depreciation of fixed assets.

    The revaluation of fixed assets is an Indonesian government policy issued in October 2015 in the form of a package V economic program that provides tax incentives for the revaluation of assets as stipulated in Regulation of the Minister of Finance (PMK) no. 191/ PMK/010/2015.

    Thus, total assets as of December 31, 2017 was USD 223.75 million, decreased by USD 3.17 million or 1.40% of total assets as of December 31, 2016 which was recorded at USD 226.91 million.

    Liabilities

    Total short-term liabilities in 2017 amounted to USD60.46 million, an increase of 17.07% or USD 8.81 million from short-term liabilities in 2016 which amounted at USD 51.64 million. The increase was mainly due to an increase in short-term bank loans and trade payables of third parties.

    Total long-term liabilities in 2017 decreased by 65.37% from the previously in 2016 was recorded at USD 14.08 million to USD 4.88 million in 2017. The decline was mainly due to current maturities of long-term bank loans. In 2018, all outstanding balances which will maturities in one year are reclassified as part of short-term liabilities.

    In addition, in 2017, the convertible bond holders of subsidiary has been converted all of the convertible bonds into shares of the subsidiary.

    Thereby, total liabilities of the Company as of December 31, 2017 amounted to USD 65.34 million, a decrease of USD 0.39 million or 0.59% compared to total liabilities on 31 December 2016 of USD 65.73 million.


    Equity

    Retained earnings in 2017, after taking into account profit of the year attributable to equity holders of the parent amounted USD 12.56 million, cash dividends amounted USD 20.93 million and loss of re-measurement of defined employee benefit program amounted USD 0.45 million, was recorded at USD 79.88 million decreased by USD 8.81 million or 9.94% compared to retained earning in 2016 which was recorded at USD 88.70 million.

    Non-controlling interests in 2017 was recorded at USD 5.61 million, an increase of USD 5.17 million or 1,164.33% compared to the previously recorded at USD 0.44 million. Thus, total equity as of December 31, 2017 was recorded at USD 158.41 million, decreased by 1.72% from USD 161.19 million as at 31 December 2016.


    Consolidated Statement of Cash Flows

    a. Cash flows from operating activities:

    In 2017, net cash derived from operations was increased by USD 6.46 million from 2016, which was recorded at USD 12.16 million to USD 18.62 million. The increase in net cash derived from operating activities was primarily from increased revenues from customers due to increased of sales volume and selling price.

    b. Cash flows from investing activities:

    Net cash used for investment activities in 2017 was recorded at USD 0.01 million, decreased by USD 2.82 million compared to the balance in 2016 which was recorded at USD 2.83 million. The decrease in investment activity was mainly due to capital injection in 2017 that received by the Company subsidiary, WG from non-controlling interests amounted USD 3.04 million. WG is a subsidiary owned by the Company at 55%, indirectly.

    Net cash used in investment activities for capital expenditures in 2017 amounted to USD 3.05 million, an increase of 7.9% compared to 2016 which recorded at USD 2.83 million. The 2017 capital expenditure was for expansion jetty.

    c. Cash flows from financing activities:

    Net cash used in financing activities in 2017 was recorded at USD 17.66 million, while in 2016 the net cash used in financing activities was recorded at USD 13.5 million, up 30.76%. This increased was mainly due in 2017 the Company paid cash dividend amounted USD 20.93 million, while in 2016, the Company did not distribute dividend.


    DEBT PAYING ABILITY

    The Company and its subsidiaries received working capital loan facilities from bank creditors in order to support working capital needs. Bank creditors required certain ratios from the Company. Those requirement ratios are fully complied at the end of 2017 and 2016. All bank creditors extended all matured short term loan facility provided to the Company.


    Ratio Analysis
    For the year ended December 31
    2017
    2016
    Current Rasio
    25,6x
    29,5x
    Debt to Equity Ratio
    0,41x0,41x
    Debt to Asset Ratio
    0,29x0,28x


    RECEIVABLE COLLECTABILITY LEVEL

    Trade Receivable Collectibility Level
    for the year ended December 31
    2017 USD 2017 % 2016 USD 2016 %
    Neither past due not impaired 36,09 80,47 41,12 82,14
    Past due but not impaired 8,58 19,14 8,79 17,57
    Past due and individually impaired 0,17 0,39 0,14 0,29
    Total 44,84 100,00 50,05 100,00

    Based on the review at end of the year 2017, the management believed that the allowance for impairment of USD 178 thousand at the end of 2017 is adequate to cover any possible losses on uncollectible trade receivables and there were no indications of impairment in the value of the other receivables, thus no allowance for impairment in value necessary.


    CAPITAL STRUCTURE

    As of December 31, 2017 and 2016, the details of the Shareholders and their respective shareholdings, based on records performed by the securities administration bureaus are as follows:

    As of December 31 , 2017

    ShareholdersNumber of Shares Issued and Fully Paid
    Ownership Percentage %Amount
    PT Aspirasi Luhur181.351.60447,3142.672.235
    PT Alas Pusaka43.660.82111,3910.273.440
    PT Salim Chemicals Corpora39.635.03610,349.326.168
    Public (ownership <5%)118.683.90230,9627.926.455
    Total383.331.363100,0090.198.298
    On December 31, 2017 Hanny Sutanto, Vice President Commissioner
    owned 318,509 (0.08%) Company's share.

    As of December 31, 2016

    ShareholdersNumber of Shares Issued and Fully PaidOwnership Percentage %Amount
    PT Aspirasi Luhur181.351.60447,3142.672.235
    PT Alas Pusaka43.660.82111,310.273.440
    PT Salim Chemicals Corpora39.092.42010,29.198.490
    Public (ownership <5%)119.226.51831,1028.054.133
    Total383.331.363100,0090.198.298





    On December 31, 2016 Hanny Sutanto, Vice President Commissioner
    owned 318,509 (0.08%) Company's share.


    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 Shareholders value. In addition, the Company is also required by the Corporate Law effective on August 16, 2007 to contribute to and maintain a non-distributable reserve fund until the said reserve reaches 20% of the issued and fully paid share capital. This externally imposed capital requirements are considered by the Group at the Annual General Shareholders Meeting (GSM).

    The Company manages its capital structure and makes adjustments to it, in light of changes in economic condition to maintain or adjust the capital structure, the Group may adjust the dividend payment to Shareholders, issue new shares or raise debt financing. No changes were made in the objectives, policies or processes as of December 31, 2017 and 2016.

    The Company's policy is to maintain working capital ratio and a healthy capital structure in order to secure access to finance at a reasonable cost.


    SIGNIFICANT AGREEMENTS

    There is no significant agreements other than those disclosed in note 35 to the consolidated financial statements, "Significant Agreements".


    CAPITAL GOODS INVESTMENT

    Investment of capital goods that realized in 2017 amounted USD 3.43 million. The majority of investment of capital goods amounted USD 2.55 million or 74.37% was used for development of the Company's jetty expansion project. The purpose of the expansion is to increase the delivery capacity of both raw materials and finished goods, thereby the Company will be able to improve its efficiency in shipping and also to reduce transportation costs which is expected to provide greater contribution to the Company's profit. Other capital goods investment of 25.63% or USD 0.88 million was used for the addition of assets such as machinery, transportation equipment and others to support the Company's operations.


    SIGNIFICANT INFORMATION AND FACTS AFTER THE REPORTING DATE

    There is no significant event occurred from end of reporting period until the date of financial statement was authorized for issue.


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Investor Relations
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