ICBP's Debt Burden Erodes Earnings Despite Strong Topline Performance

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Receh.in -
PT Indofood CBP Sukses Makmur (ICBP), a major Indonesian consumer goods company, has been struggling with a massive debt burden following its ambitious acquisition of Pinehill Company Limited in August 2020. 

To fund the acquisition, ICBP secured a five-year syndicated loan of $2.05 billion without collateral. Subsequently, the company issued $1.75 billion worth of global bonds denominated in US dollars (equivalent to IDR 25 trillion at an exchange rate of IDR 14,300/USD) on the Singapore Stock Exchange (SGX) to repay part of the bank loan related to the acquisition.

As a result, the financial burden was enormous, amounting to IDR 4.25 trillion during the period from January to September 2022, up 221.35% compared to the same period the previous year. This amount was almost the same as the sales and distribution expenses, which were IDR 5.3 trillion. 

Based on the cost and expense structure in the income statement, the financial burden borne by ICBP accounted for 9.27% of total expenses or 58% of operating expenses.

However, ICBP's topline performance has been robust. The company recorded revenue of IDR 48.91 trillion, up 14.75% from the revenue of IDR 42.62 trillion in the first nine months of 2021. 

Additionally, the gross profit increased to IDR 15.99 trillion in September 2022, from IDR 15.53 trillion in the previous year. Despite the pressure from high wheat prices, ICBP managed to achieve a gross profit margin of over 30%, specifically 32.69%. The operating profit of ICBP also increased by 8.24% to IDR 9.55 trillion compared to the previous period's profit of IDR 8.82 trillion.

However, the high financial burden has caused ICBP's net profit to plummet 33.41% to IDR 3.66 trillion during the period from January to September 2022, compared to the same period in 2021. This will affect the amount of dividends paid to investors, potentially reducing them. 

Assuming a 40% payout ratio based on historical data and earnings per share of IDR 485 in 2022 based on Refinitiv consensus, the dividend per share for the fiscal year 2022 is expected to be IDR 194 per share, down from IDR 215 per share.

Rising Financial Burden

According to ICBP's financial performance report for the period from January to September 2022, the financial burden incurred by the company consists of several accounts. The largest was the net loss on foreign exchange differences from financing activities, which amounted to IDR 2.7 trillion. 

This amount grew exponentially from the previous period, which was only IDR 197.96 billion. The sharp increase was due to the weakening of the rupiah against foreign currencies. On September 30, 2022, the exchange rate used for 1 US dollar was IDR 15,247 (full figure), while on December 31, 2021, it was IDR 14,269 (full figure).

Additionally, the burden increased due to increased financing activities, including the repayment of significant debts. According to the cash flow statement for financing activities, the company paid off other short-term liabilities amounting to IDR 9.33 trillion and short-term bank debts amounting to IDR 2.5 trillion. 

It should be noted that the company has loans, export sales, and some major purchases made in foreign currencies, which are significantly affected by the movement of benchmark prices in foreign currencies.

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