IMPORTANT NOTICE
NOT FOR DISTRIBUTION TO ANY U.S. PERSON OR TO ANY PERSON OR
ADDRESS IN THE U.S.
Important: You must read the following before continuing. The following applies
to the Offering Circular following this page, and you are therefore advised to read this
carefully before reading, accessing or making any other use of the Offering Circular.
In accessing the Offering Circular, you agree to be bound by the following terms and
conditions, including any modifications to them any time you receive any information
from us as a result of such access.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER
OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER
JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES
HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), OR THE SECURITIES
LAW OF ANY STATE OF THE U.S. OR OTHER JURISDICTION (EXCEPT THE
REPUBLIC OF INDONESIA) AND THE SECURITIES MAY NOT BE OFFERED
OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL
SECURITIES LAWS.
THE FOLLOWING OFFERING CIRCULAR MAY NOT BE FORWARDED OR
DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED
IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BE
FORWARDED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY
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IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH
THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT
OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
Confirmation of the Representation: In order to be eligible to view this Offering
Circular or make an investment decision with respect to the securities, investors must
not be a U.S. person (within the meaning of Regulation S under the Securities Act).
This Offering Circular is being sent at your request and by accepting the e-mail and
accessing this Offering Circular, you shall be deemed to have represented to us that
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this e-mail has been delivered is not located in the U.S. and that you consent to
delivery of such Offering Circular by electronic transmission.
The materials relating to the offering do not constitute, and may not be used in
connection with, an offer or solicitation in any place where offers or solicitations are
not permitted by law. If a jurisdiction requires that the offering be made by a licensed
broker or dealer and the underwriters or any affiliate of the underwriters is a licensed
broker or dealer in that jurisdiction, the offering shall be deemed to be made by the
underwriters or such affiliate on behalf of the Issuer in such jurisdiction.
C O NFIDENTIAL O FFERING C IRC ULAR
461,350,000 S hares
PT Sampoerna Agro Tbk
TABLE OF CONTENTS Page
NOTICETO INVESTORS . . . iii
ENFORCEABILITY OFCIVILLIABILITIES. . . iii
CERTAINTERMS AND CONVENTIONS . . . iv
SPECIALNOTE REGARDING FORWARD -LOOKING STATEMENTS . . . v
MARKET AND INDUSTRY INFORMATION . . . vi
PRESENTATION OFFINANCIALINFORMATION . . . vi
SUMMARY . . . 1
RISKFACTORS . . . 12
USEOFPROCEEDS . . . 25
EXCHANGE RATES AND EXCHANGE CONTROLS. . . 26
DIVIDENDPOLICY . . . 27
CAPITALIZATIONAND INDEBTEDNESS . . . 28
SELECTED FINANCIALINFORMATION . . . 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIALINFORMATION . . . 34
SELECTED OPERATING DATA . . . 39
THE FORMATION OFOUR GROUP. . . 41
MANAGEMENT SDISCUSSIONAND ANALYSISOF FINANCIALCONDITIONAND RESULTS OF OPERATIONS . . . 44
Page INDUSTRY OVERVIEW . . . 76
BUSINESS. . . . REGULATORY OVERVIEW . . . 113
MANAGEMENT AND PRINCIPALSHAREHOLDERS . . . 117
RELATED PARTY TRANSACTIONS. . . 121
DESCRIPTIONOFSHARE CAPITAL . . . 124
INDONESIAN CAPITALMARKETS. . . 128
TAXATION . . . . SUBSCRIPTIONAND SALE . . . 138
TRANSFER RESTRICTIONS. . . 144
LEGAL MATTERS. . . 1
INDEPENDENT ACCOUNTANTS . . . 145
SUMMARY OFCERTAINDIFFERENCESBETWEEN INDONESIAN GAAP A ND IFRS. . . 146
INDEX TO CONSOLIDATED FINANCIALSTATEMENTS
OFPT SAMPOERNA AGRO Tbk . . . F-1
INDEX TO FINANCIALSTATEMENTS OFPT SUNGAI
RANGIT . . . .
INDEX TO FINANCIALSTATEMENTS OFPALMA
NOTICE TO INVESTORS
You should rely only on the information contained in this offering circular in making an investment decision with respect to the Offering Shares. Neither we nor the International Selling Agent ha
authorized anyone to provide you with any additional or different information. This offering circular may only be used where it is legal to offer and sell the Offering Shares. The information in this
circular may only be accurate as of the date of this offering circular. You should be aware that date of this offering circular there may have been changes in our business or otherwise that could the accuracy or completeness of the information set out in this offering circular.
In connection with the Global Offering, the International Selling Agent and the Underwriters intend to effect transactions that stabilize or maintain the market price of the Shares at levels would otherwise prevail in the open market.
We are furnishing this offering circular on a confidential basis in connection with an offering from registration under the U.S. Securities Act and applicable state securities laws solely for
enabling prospective investors to consider the purchase of Offering Shares. The information contained offering circular has been provided by us and other sources identified in this offering circular
tion, warranty or covenant, express or implied, is made by us, the International Selling Agent their respective affiliates, directors, officers, employees, agents, representatives or advisors or completeness of the information contained herein. Any reproduction or distribution of this
in whole or in part, and any disclosure of its contents or use of any information herein is prohibited, the extent such information is otherwise publicly available.
You should be aware that you may be required to bear the risk of an investment in the Offering
for an indefinite period of time. See Transfer Restrictions for more information on these restrictions.
The distribution of this offering circular and the offer and sale of the Offering Shares offered restricted by law in certain jurisdictions. You should inform yourselves about and comply with laws and regulations in force in any jurisdiction in connection with the distribution of this of and the offer and sale of the Offering Shares. In making an investment decision, you should rely examination of us and the terms of the Global Offering including the merits and risks involved. not construe the contents of this offering circular or its appendices as legal, business, or tax should consult your own attorney, business advisor or tax advisor.
The Offering Shares have not been approved or disapproved by any securities commission or reg authority. The foregoing authorities have not confirmed the accuracy or determined the adequacy offering circular.
ENFORCEABILITY OF CIVIL LIABILITIES
We are established in Indonesia. All of our directors, executive officers, commissioners and experts named in this offering circular are residents of Indonesia. In addition, most of our assets of our directors, executive officers, commissioners and certain of our experts are located in Indonesia. result, you may not be able to:
effect service of process upon us or these persons outside Indonesia, or
enforce against us or them judgments obtained in courts outside of Indonesia.
CERTAIN TERMS AND CONVENTIONS
We have prepared this offering circular using a number of conventions, which you should consider reading the information contained in this offering circular. Unless the context requires otherwise, this offering circular to:
BAPEPAM-LK are to the Indonesian Capital Markets and Financial Institutions Supervisory
the Company or Sampoerna Agro are to PT Sampoerna Agro Tbk (formerly known as PT Selapan Jaya ( Selapan Jaya )), which operates integrated oil palm plantations in Central Kalimantan Sumatera, Indonesia;
Credit Suisse Loan are to a US$100,000,000 term loan facility agreement dated January 26, which the Company entered into with Credit Suisse, Singapore Branch (as amended by a syndication agreement dated March 23, 2007);
EBITDA are to earnings before interest, tax, depreciation and amortization. See Summary Summary Financial and Other Information for further information regarding our calculation EBITDA and a reconciliation of EBITDA to net income;
inti are to a developer of plantations and tointiplantationsour are to plantation lands in respect of which we holdHak Guna Usaharights. See Business Land Rights for further information
regardingHak Guna Usaha;
Kalimantan Region are to our oil palm plantation operations in the Sukamara and Kotawaringin Regencies of Central Kalimantan, Indonesia, which we operate through Sungai Rangit (as def below);
Nitiagro Lestari are to PT Nitiagro Lestari, which owned 5.0% of our Shares immediately this Global Offering;
our Controlling Shareholder are to Putera Sampoerna and his family, who beneficially owned of our Shares immediately prior to the Global Offering;
our Group are to our Company together with its consolidated subsidiaries, which prior to 2007, did not include Palma Agro (as defined below), Sungai Rangit (as defined below), PT Agro Indonesia, PT Selatanjaya Permai, PT Sungai Menang, PT Sawit Selatan, PT Tania Binatama PT Pertiwi Lenggara Agromas;
our Shareholders or the Shareholders are to the holders of our Shares;
our subsidiaries and its subsidiaries are to the consolidated subsidiaries of Sampoerna prior to January 26, 2007, did not include Palma Agro, Sungai Rangit, PT Usaha Agro Indonesia, PT Selatanjaya Permai, PT Sungai Menang, PT Sawit Selatan, PT Tania Binatama and PT Pertiwi Lenggara Agromas;
Palma Agro are to Palma Agro Limited, our subsidiary established in the Republic of Seychelles, which directly controls 93.6% of the shares of Sungai Rangit and as of March 31, 2007, held
exchangeable loan made to PT Sampoerna Bio Energi, which was exchangeable, at its option into additional 6.4% of the shares of Sungai Rangit;
Partnership Program are to theKemitraanprogram described under Business Plasma and Partner-ship (Kemitraan) Programs ;
Plasma Program are to the Plasma program described under Business Plasma and Partnership (Kemitraan) Programs and Plasma plantations are to plantation lands cultivated by our Plasma farmers;
Sumatera Region are to our oil palm plantation, germinated seed and slab rubber operations Ogan Komering Ilir District of South Sumatera, Indonesia, which we operate through Sampoerna and its subsidiaries;
Sungai Rangit are to PT Sungai Rangit, our subsidiary that operates an integrated oil palm company based in Kalimantan, Indonesia, in which Sampoerna Agro acquired a controlling interest January 26, 2007;
we , us and our are to Sampoerna Agro and its subsidiaries taken as a whole, including, after January 26, 2007, Palma Agro, Sungai Rangit, PT Usaha Agro Indonesia, PT Selatanjaya PT Sungai Menang, PT Sawit Selatan, PT Tania Binatama and PT Pertiwi Lenggara Agromas.
All references to the United States or U.S. are to the United States of America and references Indonesia are to the Republic of Indonesia. References to the Indonesian Government or the
ment in this offering circular are references to the Government of Indonesia. All references in circular to U.S. dollars , US$ and $ are to the lawful currency of the United States and all
Indonesian Rupiah , Rupiah and Rp. are to the lawful currency of Indonesia.
All references to tonnes are to metric tonnes. A metric tonne is equal to 1,000 kilograms, approximately 2,204.6 pounds. A hectare is a metric unit of square measurement equal to 10,000 meters, or approximately 2.471 acres.
All references to crude palm oil prices quoted on the Rotterdam market are c.i.f Europe and to our average sales prices are ex-mill for local sales and f.o.b. South Sumatera Port for export Sumatera Region and f.o.b jetty in Sukamara for our Kalimantan Region.
Production capacity figures, quoted in tonnes, indicate the number of tonnes of products that are rated by manufacturers to produce. Capacity utilization figures are calculated by dividing figures for a particular period by production capacity (annualized or pro rated for a period less
Age figures for our oil palm trees are calculated by taking the actual age of trees in a planted rounding up to the next whole year. References to hectares of plantations that we have cultivated developed refer to hectares of plantation land on which we have planted oil palm trees or rubber
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This offering circular contains forward-looking statements that are, by their nature, subject risks and uncertainties. These forward-looking statements include, without limitation, statements
our plans, targets, objectives or goals, including those related to our products and operations;
our revenue and profitability;
anticipated increases in our crude palm oil yield per hectare and crude palm oil and palm extraction rates;
anticipated demand and selling prices for crude palm oil, palm kernel and germinated seeds;
future and budgeted capital expenditures and investments in general and expected production of our processing mills to be constructed or acquired as part of our capital expenditure plans;
environmental compliance and remediation;
future economic performance; and
assumptions underlying these statements.
Forward-looking statements that may be made by us from time to time (but that are not included offering circular) may also include projections or expectations of revenues, income (or loss), per share, dividends, capital structure or other financial items or ratios.
The words anticipate , believe , could , estimate , expect , intend , may , plan , would and similar expressions, as they relate to us, are intended to identify a number of these looking statements. These forward-looking statements reflect our current view with respect to and are not a guarantee of future performance.
You should be aware that a number of important factors could cause our actual results to dif from the plans, objectives, expectations, estimates, projections and intentions expressed in looking statements. These factors include:
economic, social and political conditions in Indonesia and other countries in which we transact business;
fluctuations in global weather and climatic conditions that affect oil palm crops;
changes in the prices of raw materials used in our production processes, including, in particular fertilizers;
changes or volatility in inflation and foreign exchange rates;
increases in regulatory burdens in Indonesia;
changes in import or export controls, duties, levies or taxes, either in international markets Indonesia, affecting crude palm oil and palm kernel;
availability of, and our ability to obtain, land rights and revocation of, or restrictions rights;
changes in our relationship with the Government and regional and local government authorities Indonesia;
acquisitions and various business opportunities that we may pursue; and
our success in managing the risks of any of these factors.
This list of important factors is not exhaustive. When relying on forward-looking statements, carefully consider the foregoing factors and other uncertainties and events, especially in light economic, social and legal environment in which we operate. These forward-looking statements speak of the date on which they are made. Accordingly, we do not undertake any obligation to update or of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by those forward-looking achieved, and these forward-looking statements represent, in each case, only one of many possible and should not be viewed as the most likely or standard scenario. Accordingly, you should not place reliance on any forward-looking statements.
MARKET AND INDUSTRY INFORMATION
We have obtained certain market data, industry forecasts and data relating to Indonesia and countries or areas of the world used in this offering circular from the Indonesian Palm Oil Producers Association, the Indonesian Ministry of Agriculture in Indonesia and ISTA Mielke GmbH, the publisherOil World Annual, internal surveys, market research and publicly-available industry, Government and
information, publications and websites. Industry publications generally state that the information therein has been obtained from sources believed to be reliable, but that the accuracy and completeness information is not guaranteed. While we believe these industry forecasts and market research to
we have not independently verified this information and do not make any representation as to the completeness of this information.
PRESENTATION OF FINANCIAL INFORMATION
This offering circular contains:
the audited consolidated financial statements of Sampoerna Agro as of December 31, 2004, 2006 and for the years then ended, and as of March 31, 2007 and for the three-month period then ended;
the audited financial statements of Sungai Rangit as of December 31, 2004, 2005 and 2006 and years then ended; and
the audited financial statements of Palma Agro as of December 31, 2006 and for the period January 5, 2006 (inception) through December 31, 2006, which were prepared under generally accounting principles in the Republic of Seychelles,
Financial Reporting Standards ( IFRS ). Please refer to Summary of Certain Differences Between GAAP and IFRS included in this offering circular.
We maintain our accounts and publish our financial statements in Indonesian Rupiah. Solely convenience of the reader, we have translated certain Indonesian Rupiah amounts in this offering U.S. dollars at specified rates. Unless otherwise indicated, U.S. dollar equivalent information
Indonesian Rupiah is based on the middle exchange rate of Bank Indonesia, the central bank of Indonesia, March 30, 2007, which was Rp.9,118 per US$1.00. The middle exchange rate of Indonesian Rupiah for
U.S. dollars on May 30, 2007 was Rp.8,815 per US$1.00. The Federal Reserve Bank of New York does certify for custom purposes a noon buying rate for cable transfers in Indonesian Rupiah. We make representation that the Indonesian Rupiah amounts, on the one hand, or U.S. dollar amounts, on hand, shown in this offering circular could have been or could be converted into U.S. dollars or
Rupiah, as the case may be, at any particular rate or at all. See Exchange Rates and Exchange Controls further information regarding rates of exchange between Indonesian Rupiah and U.S. dollars.
SUMMARY
This summary may not contain all of the information that is important to you. Before making an investment decision, you should read this entire offering circular, including our financial statements and related notes and “Risk Factors” beginning on page 12.
Our Business
We are a leading producer of crude palm oil and palm kernel in Indonesia and one of the seven Government-approved oil palm seed producers in Indonesia. Our primary business activities are:
cultivating oil palm trees and processing the harvested fresh fruit bunches, or FFB, into and palm kernel; and
developing and processing germinated oil palm seeds.
We operate in the Sumatera Region through Sampoerna Agro and its five subsidiaries PT Telaga Hikmah, PT Aek Tarum, PT Mutiara Bunda Jaya, PT Binasawit Makmur and PT Gunung Tua Abadi. As of March 31, 2007, we held HGU land rights in the Sumatera Region to oil palm plantations in the Ogan Komering Ilir district of South Sumatera covering approximately 35,177 hectares andIjin Lokasi(Location
Permits) covering an additional 75,896 hectares. We operate in the Kalimantan Region through Sungai in which we acquired a controlling interest on January 26, 2007. As of March 31, 2007, we held HGU rights in the Kalimantan Region to an oil palm plantation in the Sukamara and Kotawaringin Barat Central Kalimantan covering approximately 17,061 hectares.
We operate and manageintiplantations and develop and foster plasma plantations in our Sumatera Region, and operate and manageintiand partnership plantations in our Kalimantan Region. As of March 31, 2007, theintiand plasma plantations in our Sumatera Region included approximately 54,878 hectares mature oil palm trees and 5,736 hectares of immature oil palm trees, and theintiand partnership plantations in
our Kalimantan Region included approximately 12,668 hectares of mature oil palm trees and 785 hectares immature oil palm trees.
We produce both crude palm oil and palm kernel from the fresh fruit bunches harvested from our palm trees at four crude palm oil processing mills located in our Sumatera Region and one processing
located in our Kalimantan Region. Our five crude palm oil mills have a processing capacity of approximately 350 tonnes of fresh fruit bunches per hour. We are one of only seven Government-approved oil palm
producers in Indonesia and, to date, we have developed six varieties of germinated oil palm seeds which we use for planting material on our plantations and the balance of which we sell to third 2004, the Ministry of Agriculture granted us licenses to sell our seed varieties and, as of December we had produced and distributed approximately 19.3 million germinated seeds. In addition to producing palm oil, palm kernel and germinated oil palm seeds, as of March 31, 2007 we had approximately 182 hectares of rubber plantations in our Sumatera Region.
Oil palm trees require approximately three to four years to mature and do not reach peak production eight years after planting. Their peak production years range from their eighth year through their after which their production of fresh fruit bunches gradually declines. We expect that the yields plantations in the Sumatera and Kalimantan Region will improve and production of crude palm oil
kernel will increase as more of our trees mature and reach peak production. Our crude palm oil production the Sumatera Region increased from 146,988 tonnes in 2003 to 220,655 tonnes in 2006, representing
compound annual growth rate of 14.5%. The crude palm oil production in the Kalimantan Region increased from 11,380 tonnes in 2003 to 21,238 tonnes in 2006, representing a compound annual growth rate
Our palm kernel production in the Sumatera Region increased from 29,695 tonnes in 2003 to 54,412
2006, representing a compound annual growth rate of 22.4%. The palm kernel production in the Kalimantan Region increased from 2,580 tonnes in 2003 to 4,581 tonnes in 2006, representing a compound annual rate of 21.1%.
Our Strengths
We believe that we are well-positioned to take advantage of growth in the palm oil industry attributes will continue to differentiate us from our competitors. We intend to leverage off the strengths to progressively expand our oil palm plantation area, achieve higher fresh fruit bunch extraction rates, increase our mill processing capacity, and improve our overall operational ef to increase our production of crude palm oil and palm kernel. We also plan to further develop our seeds business and enhance our agriculture and planting knowledge through continued commitment of research and development.
Our Plantations and Mills Are Ideally Located for High Yields and Low Cost Production
The Majority of Our Plantations Are in Peak Production, Yielding High Production of Fresh Bunches
We Employ a Disciplined Approach to Managing our Plantations
Our Success in Seed Production Has Diversified Our Business
We Are in a Strong Financial Position to Continue to Execute our Expansion Plans
We Have the Commitment and Support of a Professional Management Team with Extensive Experience in the Plantation Industry
Our Business Strategy
Our business objective is to be a responsible Indonesian leader in the palm oil industry, which long-term profitability. We plan to achieve our objective through the implementation of the follo initiatives:
Expand our Oil Palm Plantation Area
Further Develop our Research and Development Capabilities
Increase our Profit Margins through Higher Operational Efficiency
Rehabilitation of our Kalimantan Plantations
Formation of our Group and Ownership Structure
Sampoerna Agro, formerly known as Selapan Jaya, was established in Indonesia in 1993. Our Controlling Shareholder acquired a controlling interest in Sampoerna Agro in January 2007.
In April 2006, our Controlling Shareholder acquired a controlling interest in Sungai Rangit,
plantation operator in Kalimantan, Indonesia. On January 26, 2007, Sampoerna Agro acquired a controlling interest in Sungai Rangit.
Significant events in our history are set out below:
June 1993. . . .Sampoerna Agro, then known as Selapan Jaya, established to operate oil palm plantations in South Sumatera
March 1996. . . .Sungai Rangit commenced operation of its oil palm plantations in Central Kalimantan June 1996. . . .Sampoerna Agro commenced operation of its
first crude palm oil processing mill
May 2002 . . . .Sungai Rangit commenced operation of its first crude palm oil processing mill
April 2006. . . .Controlling Shareholder acquired aOur controlling interest in Sungai Rangit January 2007. . . .Controlling Shareholder acquired aOur
controlling interest in Sampoerna Agro
January 2007. . . .Sampoerna Agro acquired a controlling interest in Sungai Rangit
March 2007. . . .Selapan Jaya changed its name to PT Sampoerna Agro
March 2007. . . .Sampoerna Agro acquired a controlling interest in PT Usaha Agro Indonesia, PT Selatanjaya Permai, PT Sungai Menang, PT Sawit Selatan, PT Tania Binatama and PT Pertiwi Lenggara Agromas
The following chart sets forth our ownership structure as of the date of this offering circular
Venture Max Resources
Nitiagro Lestari
Sampoerna Agro
PT Telaga Hikmah
PT Aek Tarum
PT Mutiara Bunda Jaya
PT Gunung Tua Abadi
Palma Agro
PT Sungai Rangit PT Sawit
Selatan
PT Tania Binatama
PT Selatanjaya Permai
PT Sungai Menang
PT Usaha Agro Indonesia
PT Pertiwi Lenggara Agromas
95% 5%
99% 99% 100%
93.6%
Sumatera Kalimantan
99%
The Offering
Issuer. . . .Sampoerna Agro TbkPT
The Global Offering. . . .fering of 461,350,000 newly-issued shares of PT SampoernaThe of Agro Tbk (the Offering Shares ). The Global Offering consists the sequential International Offering and Indonesian Offering.
The International Offering. . . .fering Shares are being offered by us through the Interna-The Of tional Selling Agent to certain non-U.S. persons outside Indonesia and the United States in offshore transactions in reliance on Regu lation S under the U.S. Securities Act. The closing of the Interna-tional Offering is condiInterna-tional upon the closing of the Indonesian Offering.
The Indonesian Offering. . . .fering Shares are being offered in Indonesia through theThe Of Underwriters by way of a public offer in Indonesia.
Clawback and Re-Allocation. . . fering Shares may be reallocated between the InternationalThe Of Offering and the Indonesian Offering in the event of under-sub-scription in one and an over-subunder-sub-scription in the other.
Offering Price .. . . .Rp.2,340 per Offering Share (the Offering Price ).
Shares Outstanding. . . .date of this offering circular, our authorized share capitalAs of the is Rp.1,100,000,000,000 (US$120,640,491) divided into
5,500,000,000 shares, each with a par value of Rp.200 ( Shares ) Our issued and paid-up share capital is Rp.285,730,000,000 (US$31,336,916) consisting of 1,428,650,000 fully paid Shares. Upon completion of the Global Offering, our issued and paid-up share capital will be Rp.378,000 million (US$41 million), consist-ing of 1,890,000,000 fully paid Shares, and our additional paid-in share capital will be Rp.987,289 million (US$108 million).
Listing of our Shares. . . .Prior to the Global Offering, there has been no public market for our Shares. Application has been made for the listing and quotation of our Shares on the JSX. If the relevant listing approval is granted, trading in our Shares on the JSX is expected to commence on or
about June 18, 2007 (the Listing Date ).
Lock-ups. . . .agreed that, for a period of six months following theWe have Listing Date, we will not offer, sell, contract to sell, pledge erwise dispose of, directly or indirectly, any of our Shares or securities convertible into an exchangeable or exercisable for of our Shares, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences ownership of our Shares, whether any such transaction is settled delivery of our Shares or such other securities, in cash or other-wise, or publicly disclose the intention to effect any such offer sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the International Selling Agent (such consent to be unreasonably withheld or delayed).
In addition to the consent of the International Selling Agent, may also require the consent of BAPEPAM-LK before the applica-ble lock-up can be waived.
Use of Proceeds. . . .will use the net proceeds of approximately Rp.1,019,859 millionWe (US$112 million) we receive from the Global Offering primarily (i) together with cash from other sources, repay the Credit Suisse Loan, the outstanding principal amount of which is US$100 million as of the date of this offering circular, and (ii) to finance our expansion program. We intend to use the balance of the proceeds for general working capital and other corporate expenses.
Voting Rights .. . . .Owners of the Offering Shares offered in this Global Offering will be entitled to the same voting rights as other holders of our Shares.
Dividends. . . .declaration, amount and payment of future dividends on ourThe Shares, if any, is discretionary and will be subject to the recom-mendation of our Board of Directors and approval of our
Shareholders. See Dividend Policy and Description of Share Capital Dividends .
Payment. . . .Payment to us of the net proceeds for the Shares sold in the Global Offering is expected to be made on or about June 18, 2007 in
immediately available funds.
Delivery. . . .Delivery of the shares to successful applicants will be made against payment therefor through the depository facilities of the Indonesian Securities Depository Company, PT Kustodian Sentral Efek Indone-sia ( KSEI ). See Subscription and Sale Registration of the Offering Shares in KSEI and Indonesian Capital Markets . It is expected that the Offering Shares will be delivered on or about June 18, 2007.
Transfer Restrictions. . . .fering Shares sold in the Global Offering will be subjectThe Of
certain transfer restrictions as described in Transfer Restrictions .
Timetable. . . .indicative timetable in respect of the International OfferingAn the Indonesian Offering is set forth under Subscription and Sale .
Risk Factors . .. . . .estment in our Shares involves risks which are described underInv Risk Factors .
Summary Financial and Other Information
You should read the summary financial and other information presented below in conjunction consolidated financial statements, related notes and other financial information of Sampoerna
financial statements, related notes and other financial information of Sungai Rangit (a consolidated of Sampoerna Agro) and Palma Agro (a consolidated subsidiary of Sampoerna Agro and also the parent company of Sungai Rangit), and the related audit reports thereon, included elsewhere in this of You should also read the section of this offering circular entitled Management s Discussion and Financial Condition and Results of Operations , included herein.
We derived our summary financial and other information for Sampoerna Agro below from the consolidated financial statements of Sampoerna Agro for the years ended December 31, 2004, 2005, The consolidated financial statements of Sampoerna Agro for the years ended December 31, 2004 and have been audited by Prasetio, Sarwoko & Sandjaja (who were a member of Ernst & Young Global), independent public accountants. The consolidated financial statements of Sampoerna Agro for the December 31, 2006 have been audited by Purwantono, Sarwoko & Sandjaja (who are a member of Ernst Young Global), independent public accountants. The financial statements of Sungai Rangit for the
December 31, 2004 and 2005 have been audited by Dra. Suhartati & Partner, independent public accountants. The financial statements of Sungai Rangit for the year ended December 31, 2006 have been audited
Malonda Astika & Rekan, independent public accountants.
The consolidated financial statements of Sampoerna Agro and the financial statements of Sungai each for the years ended December 31, 2004, 2005 and 2006, have been prepared in accordance with Indonesian GAAP.
The consolidated financial statements of Sampoerna Agro for the years ended December 31, 2004, and 2006 do not include the financial statements of Sungai Rangit and Palma Agro, as Sampoerna Agro not acquire a controlling financial interest in Sungai Rangit and Palma Agro until January 26,
Unaudited Pro Forma Condensed Consolidated Financial Information for the presentation of the pro forma condensed consolidated financial information of Sampoerna Agro as of, and for the year December 31, 2006, which is presented as if Sampoerna Agro had acquired Sungai Rangit and Palma since January 1, 2006.
See Summary of Certain Differences Between Indonesian GAAP and IFRS for a discussion of
2004 2005 2006 2006 As Of December 31,
Rp. Rp. Rp. US$
(In millions)
Balance Sheet Data:
Cash and cash equivalents. . . .81,515 23,146 64,238 7.1 Trade receivables. . . .1,217 419 515 Total current assets. . . .111,474 127,812 103,345 11.5 Plantation assets:
Mature plantations, net. . . .129,580 131,210 127,642 14.2 Immature plantations. . . .15,332 10,567 15,139 1.7 Fixed assets, net. . . .334,261 323,334 302,537 33.5 Total non-current assets. . . .524,184 527,332 512,099 56.8 Total assets. . . .635,658 655,144 615,444 68.2 Current portion of long-term debt bank loans . .. . . .54,580 57,000 32,125 3.6 Bank loans, net of current maturities. . . .257,812 197,928 81,356 9.0 Total liabilities. . . .398,840 356,430 203,670 22.6 Total shareholders . . . .equity 234,787 296,096 408,247 45.3
2004 2005 2006 2006
Year Ended December 31,
Rp. Rp. Rp. US$
(In millions)
Cash Flow Data:
Net cash from operating activities. . . .183,288 92,682 258,014 28.6 Net cash used in investing activities. . . .(116,266) (38,450) (36,025) (4.0) Net cash used in financing activities. . . .(57,366) (112,601) (180,897) (20.0)
Net increase/(decrease) in cash and cash equivalents. . . .9,656 (58,369) 41,092 4.6 Cash and cash equivalents at beginning of year.. . . .71,859 81,515 23,146 2.6
Cash and cash equivalents at end of year. . . .81,515 23,146 64,238 7.1
2004 2005 2006 2006
Year Ended December 31,
Rp. Rp. Rp. US$
(In millions, except percentages)
Non-Indonesian GAAP Financial Data (unaudited):
(1) Adjusted EBIT and Adjusted EBITDA are not measurements of financial performance under Indonesian GAAP and should not be considered as an alternative to net cash provided by operating activities measure of liquidity or an alternative to net profit as indicators of our operating performance measure of performance derived in accordance with Indonesian GAAP. As a measure of our operating formance, we believe that the most directly comparable Indonesian GAAP measure to Adjusted
and Adjusted EBIT is profit after tax. The following table reconciles our net income under Indonesian GAAP to our calculation of Adjusted EBITDA for the periods indicated:
2004 2005 2006 2006
Year Ended December 31,
Rp. Rp. Rp. US$
(In millions)
Reconciliation:
Net income. . . .105,706 61,309 112,671 12.5 Add back:
Minority interest in net income of subsidiaries. . . 899 586 910 0.1 Income tax expense. . . .40,597 23,878 48,515 5.4 Interest expense. . . .50,931 41,063 31,696 3.5 Depreciation and amortization. . . .36,635 41,174 43,207 4.8 Amortization of deferred landrights costs . .. . . 231 229 258 Loss on disposal of investment in associated company. . . .13,000
Other expenses, net. . . .(1,734) 752 2,501 0.3 Less:
Interest income. . . .6,124 3,131 4,168 0.5 Extraordinary item, net of related tax effect. . . 3,729
Adjusted EBITDA. . . .240,142 162,131 235,589 26.1 Less:
Depreciation and amortization. . . .36,866 41,403 43,465 4.8 Adjusted EBIT. . . .203,275 120,728 192,124 21.3
Sungai Rangit
2004 2005 2006 2006
Year Ended December 31,
Rp. Rp. Rp. US$
(In millions)
Income Statement Data:
Sales. . . .40,691 54,668 77,691 8.6 Cost of sales. . . .33,170 52,927 63,338 7.0
Gross profit. . . .7,521 1,741 14,353 1.6 Operating expenses. . . .6,094 5,370 6,642 0.7
Income/(loss) from operations. . . .1,427 (3,629) 7,711 0.9 Other expenses. . . .(3,689) (3,752) (1,421) (0.2)
Income/(loss) before income tax. . . .(2,263) (7,381) 6,290 0.7 Income tax benefit/(expense). . . .1,515 (4,220)841(0.5)
Net income/(loss). . . .(1,421) (5,866) 2,070 0.2
2004 2005 2006 2006
As Of December 31,
Rp. Rp. Rp. US$
(In millions)
Balance Sheet Data:
Cash and cash equivalents. . . .12,966751 1.4 52 Accounts receivable . . . .trade 1,218 789 0.1 Total current assets. . . .26,798 3,841 29,116 3.2 Plantations. . . .268,350 306,213 309,295 34.3 Property, plant and equipment. . . .95,680 106,358 99,964 11.1 Total non-current assets. . . .372,222 420,463 430,401 47.7 Total assets. . . .399,020 424,303 459,517 50.9 Short-term bank loans. . . .18,304 23,000
Total current liabilities. . . .29,668 46,749 16,352 1.8 Long-term bank loans. . . .178,105 177,037 180,000 20.0 Subordinated loan. . . .100,000 100,000
Total non-current liabilities. . . .299,448 313,515 197,056 21.8 Total shareholders . . . .equity 69,905 64,039 246,109 27.3
2004 2005 2006 2006
Year Ended December 31,
Rp. Rp. Rp. US$
(In millions)
Cash Flow Data:
Cash from/(used in) operating activities. . . .(48,639) 16,645 (614) (0.1) Cash used in investing activities. . . .(4,334) (33,640) (19,167) (2.1) Cash from financing activities. . . .53,523 16,296 32,695 3.6
Net increase/(decrease) in cash. . . .(699) 12,914550 1.4
Cash and cash equivalents, beginning. . . 201 751 52
2004 2005 2006 2006 Year Ended December 31,
Rp. Rp. Rp. US$
(In millions, except percentages)
Non-Indonesian GAAP Financial Data (unaudited):
Adjusted EBIT(1). . . .1,427 (3,629) 7,711 0.9 Adjusted EBITDA(1). . . .15,095 11,638 31,198 3.5 Adjusted EBITDA margin(2). . . .37.1% 21.3% 40.2% 40.2%
(1) Adjusted EBIT and Adjusted EBITDA are not measurements of financial performance under Indonesian GAAP and should not be considered as an alternative to net cash provided by operating activities measure of liquidity or an alternative to net profit as indicators of our operating performance measure of performance derived in accordance with Indonesian GAAP. As a measure of our operating formance, we believe that the most directly comparable Indonesian GAAP measure to Adjusted
and Adjusted EBIT is profit after tax. The following table reconciles our net income under Indonesian GAAP to our calculation of Adjusted EBITDA for the periods indicated:
2004 2005 2006 2006
Year Ended December 31,
Rp. Rp. Rp. US$
(In millions)
Reconciliation:
Net income (loss). . . .(1,422) (5,866) 2,070 0.2 Add back:
Income tax expense. . . .(841) (1,515) 4,220 0.5 Interest expense. . . .4,070 4,122 2,009 0.2 Depreciation and amortization. . . .13,668 15,267 23,487 2.6 Tax penalties. . . .1,725 0.2
Loss on sale of equipment. . . 626 Less:
Interest income. . . .1,709 0.211 3 Others. . . .1,230 0.1 370
Adjusted EBITDA. . . .15,095 11,638 31,198 3.5 Less:
Depreciation and amortization. . . .13,668 15,267 23,487 2.6 Adjusted EBIT. . . .1,427 (3,629) 7,711 0.9
RISK FACTORS
Risks Relating to Our Business
We face risks relating to the expansion of our plantations and processing operations, which may adversely affect us.
We are currently expanding our operations. Our expansion projects involve various risks, including planting, engineering, construction, regulatory and other significant risks that may delay or
successful completion or operation of these projects or significantly increase our costs. Our successfully complete our expansion projects is also subject to the following risks:
Government policies could limit our ability to obtain adequate land rights to additional plantations;
we may not be able to convert all of theIjin Lokasithat we hold to HGU rights and therefore may not be able to use all of this land for our planned expansion;
we may not be able to complete our plantation and processing mill expansion projects on time budget;
unforeseen circumstances and problems relating to our expansion projects may distract our from focusing on our operations;
our new or expanded plantations may not be able to produce crops at expected production le may cost more to cultivate and harvest than we expect;
we may experience difficulties integrating our new or expanded plantations with our current and processing facilities as we expect;
our new or expanded processing facilities may not be able to process fresh fruit bunches at production levels or may cost more to operate than we expect; and
we may not be able to sell any additional production volumes at profitable prices.
Any of these factors could have a material adverse effect on our business, financial condition, operations and prospects.
We may not be able to continue to use, renew or expand our current Indonesian land rights.
In Indonesia, the Government controls all land and land rights, although it regularly grants certain periods.Hak Guna Usaha(Right to Cultivate) ( HGU ) is a right to use state-owned land for plantation, fisheries or farming with a minimum area of five hectares, for a maximum period of 35 extendable for up to 25 additional years and renewable after the expiration of this extension period the majority of our land rights in the form of HGU. The HGU rights we hold expire between 2039 and in our Sumatera Region, and between 2036 and 2039 in our Kalimantan Region, unless further extended. intermediate stages of the HGU approval process are theIjin Lokasi(Location Permit) and the survey of land
byPanitia B, after which a Decision Letter on the Granting of HGU (Surat Keputusan PemberianHGU) is
issued, and later a registration of the HGU. See Business Land Rights for a description of the land rights we hold.
In February 1999, the State Minister for Agriculture and Head of the National Land Agency issued Regulation No. 2 of 1999 ( Regulation No. 2/1999 ), which limits the aggregate size of agricultural plantations (including oil palm plantations) held by any person or company or any group of related companies. According to Regulation No. 2/1999, the maximum aggregate sizes for oil palm plantations company or a group of companies under the same shareholding are 20,000 hectares for each province Indonesia, except for the province of Papua (formerly know as Irian Jaya) where the maximum area hectares, and 100,000 hectares nationally. Regulation No. 2/1999 provides various exceptions limitations, including providing that the limitations do not apply to companies in which the Gov a majority interest or to public companies in Indonesia, if the majority of its shares are owned
In February 2007, the Minister for Agriculture issued Regulation No. 26/Permentan/OT.140/2/2007 ( Regulation No. 26/2007 ), which sets guidelines for plantation business licenses. Among other
Regulation No. 26/2007 also provides various exceptions to the size limitations one of which is limitations do not apply to public plantation companies, if the majority of its shares are owned
It is unclear how the National Land Agency or the provincial governments will respond to the Regulation No. 26/2007, which allows companies to own plantations of up to 100,000 hectares. The Land Agency has not yet amended Regulation No. 2/1999, in particular regarding the limitation on area.
As of March 31, 2007, we held HGU land rights to approximately 35,177 hectares in our Sumatera Region (thus exceeding the limitation as to plantation size in each province, under Regulation and to approximately 17,061 hectares in our Kalimantan Region. We have also obtainedIjin Lokasiin our
Sumatera Region to approximately 75,896 hectares, expiring between August 2007 and December 2007. Regulation No. 2/1999,Ijin Lokasimay be extended if the holder of theIjin Lokasihas acquired more than
50% of the land under theIjin Lokasi. Although, as of March 31, 2007, we had not fulfilled this requirement, we intend to request an extension for ourIjin Lokasi.We cannot assure you that the extension of thisIjin
Lokasiwill be granted and that HGU rights will be issued.
In addition, due to the developing nature of Indonesian property law and the lack of a uniform system in Indonesia, disputes over our purchase of title from previous landowners could occur.
rights to plantation lands that have been formed from the land of many small holders or lands belonging indigenous people commonly give rise to disputes with former or illegal landowners. We have paid, from time to time pay, small amounts of compensation to settle those disputes where appropriate.
Failure to obtain an extension for ourIjin Lokasi, failure to obtain HGU rights on the acquired land covered by ourIjin Lokasiand any disputes over our land which we are involved in, could each have an adverse effect on our business, financial condition, results of operations and prospects.
We are exposed to the risk of small landholders defaulting on repayment of the loans extended or guaran-teed by us under the Plasma Programs in which we participate.
In accordance with Indonesian Government policy, oil palm plantation companies like ourselv
encouraged to develop new plantations that will be operated by local small landholders. This assistance local small landholders in the Sumatera Region generally takes the form of a Plasma Program .
Programs are designed to develop oil palm plantations for small landholders. Under the Plasma Program, the plasma plantations have been developed, they are transferred to the small landholders who then plasma plantations under the supervision of the developer. Under a majority of the Plasma Programs we participate, small landholders are required to sell their fresh fruit bunches to us, and we are a portion of the amounts payable to the plasma farmers for the fresh fruit bunches (i) to the banks provided financing to the farmers for the financing of the development cost of their plantations, repay the outstanding amounts and (ii) to offset any outstanding amounts under the unsecured loans by us to the farmers after full repayment of the outstanding amounts to the banks.
Small landholders may default on their obligation to sell fresh fruit bunches to us, which could them defaulting on their loan repayments to the banks and to us. In this event, the guarantees we provided to the banks to secure the loans of the small landholders may be called upon by the banks. provided guarantees aggregating Rp.14,969 million as of March 31, 2007. In addition, we have funded of development and cultivation of the plantations of Plasma farmers amounting to Rp.49,048 million March 31, 2007.
As we continue to expand our plantation land covered by Plasma Programs, we may make additional advances to farmers and issue additional guarantees in respect of loans to these farmers from banks. material default by these small landholders on their obligations to the banks and us could have adverse effect on our business, financial condition, results of operations and prospects.
We depend on the services of our senior executive and managerial personnel, and if we are unable to retain our senior personnel or attract suitable replacements our business could be adversely affected.
We believe that our continued growth and success largely depends on our ability to retain skilled, qualified and experienced personnel. If we are unable to attract, retain and motivate highly skilled, and experienced personnel our business could be adversely affected. Even if we are successful in
and retaining such personnel, competition for these employees may significantly increase our compensation costs and adversely affect our business, financial condition, results of operations and prospects.
Our results of operations are affected by Government export taxes.
In 1994, the Government imposed an export tax on the export of crude palm oil and other palm products. The Government stated that it was imposing these export taxes to control the selling bleached deodorized olein (cooking oil) in the domestic market, which had increased due, in part, in the world market price for these products. The depreciation of the Indonesian Rupiah in 1997 1998 also caused significant increases in the domestic price of refined bleached deodorized olein export of palm oil products comparatively more profitable. As a result, in December 1997, the Gov imposed an export ban on these products. This ban was lifted in April 1998 and replaced with an e This tax was initially in the range of 10.0% to 40.0% (depending on the type of product) and was increased to between 20.0% and 60.0%. The Government reduced the export tax to between 7.0% and in June 1999. The export tax for crude palm oil is presently 1.5%. The export tax and the export discouraged Indonesian oil palm companies from exporting their products, resulting in increased lower domestic prices for these products. This, in turn, has adversely affected our ability to products and the prices we can charge for our products in Indonesia.
If the Government increases the export tax level or re-imposes an export ban on our products other similar actions, our export sales and the prices we can charge in the Indonesian market will affected, which could adversely affect our business, financial condition, results of operations
We may require additional funding in the future.
We may, from time to time, pursue business opportunities that we deem favorable to our future and prospects. To the extent that our funds generated from operations are insufficient, we may
additional debt or equity funding to finance the pursuit of these opportunities. Our working capital expenditure needs may also vary materially from those presently planned, which may also result for substantial new capital.
Further issues of Shares after the completion of the Global Offering may lead to a dilution interests of our Shareholders. Further debt financing may, apart from increasing our leverage
expense, contain restrictions on dividend payments, future fund raising ability and other financial operational matters. Additionally, we cannot assure you that we will be able to obtain any additional whether equity or debt, at commercially reasonable terms or at all.
We may not achieve the results we expect from the rehabilitation of our Kalimantan Region plantations and processing mill.
After our Controlling Shareholder acquired control of the Kalimantan Region in April 2006, tion plan for the plantations was instituted. This plan includes various measures adopted in an increase the yields of fresh fruit bunches in theintiand partnership plantations and to increase the extraction rates in the processing mill. This plan included hiring various consultants and additional workers plantations and processing mill in 2006, an increase in overall salary rates for the workers to
required minimum wage rates in the region in 2006, application of intensive fertilizer in the plantations upgrading the processing mill. We expect to complete implementation of the rehabilitation plan
inability to achieve the results we expect from this rehabilitation plan may adversely affect our financial condition, results of operations and prospects.
We are subject to environmental regulations in Indonesia. Changes in environmental regulations could adversely affect us.
funds on environmental matters. In addition, environmental regulations in Indonesia tend to be than in the United States and other developed countries. Environmental regulations in Indonesia more stringent in the future, which could have a material adverse effect on our business, financial results of operations and prospects.
Our insurance coverage may not adequately protect us against possible risk of loss.
Our operations are subject to hazards and risks inherent in agriculture and processing operations, fires, storage tank leaks, mechanical failure of equipment at our processing facilities and natural Many of these operating and other risks may cause personal injury and loss of life, severe damage destruction of our properties and environmental pollution, and could result in suspension of part operations and the imposition of penalties.
While we believe that we maintain insurance coverage in amounts consistent with industry norms Indonesia, we do not insure our plantations against fire, diseases or pests and our Sumatera Region insured for business interruption or third party liability. If any significant part or all of our processing facilities were to be damaged in whole or in part and our operations were to be interrupted sustained period, we cannot assure you that our insurance policies would be adequate to cover the we may incur as a result of such interruption or to cover the costs of repairing or replacing the facilities. If we suffer a large uninsured loss or any insured loss suffered by us significantly insurance coverage, our business, financial condition, results of operations and prospects could and adversely affected. In addition, our insurance policies do not cover any penalties or fines payments owed to the Government resulting from any of these risks. See Business Insurance for summary of our insurance policies.
The cost of the raw materials we require for our operations may increase.
A substantial portion of the raw materials we require for our operations consists of fertilizer chemicals we use for land clearing and weed control, most of which we import. We expect that demand these products will increase as oil palm plantations continue to expand in Indonesia, Malaysia countries, which may lead to increases in the prices of these products. Any substantial increase these products could adversely affect our business, financial condition, results of operations
Risks Relating to the Palm Oil Industry
The prices of our products fluctuate depending primarily on international prices.
A substantial majority of our sales of crude palm oil and palm kernel have been made within the Indonesian market. Although we invoice our sales of our crude palm oil and palm kernel in Indonesia Indonesian Rupiah, prices have generally been based on, or affected by, international U.S. dollar crude palm oil. International prices for our products are affected by a number of factors, including
world demand for and supply of palm oil;
world demand for and supply of other vegetable oils, most notably soybean oil and rapeseed
import and export tariffs such as Indonesian export taxes and Indian and Chinese import tarif
prices of other vegetable oils;
economic developments as well as population growth, per capita consumption and food demand;
weather conditions and other natural influences.
In addition, we expect the emerging biofuel market to create an additional source of demand oils and this may have an effect on prices in the future.
We are adversely affected by downturns in harvesting of fresh fruit bunches due to adverse weather condi-tions, natural disasters and other factors.
The number of oil palm trees that have reached commercial and peak maturity affects the amount fruit bunches we are able to harvest at our plantations from year to year. In addition, the follo may also reduce the amount of fresh fruit bunches we are able to harvest:
unfavorable local and global weather patterns;
the trend of an annual drought in the Sumatera and Kalimantan Regions, each of which typically for approximately three months but which in the past have lasted for up to five months;
more stringent environmental and conservation regulations;
natural disasters;
haze from forest fires;
labor strikes or other disturbances;
delay in fertilizer application; and
crop pests or disease.
In 1997, our plantations were affected by a drought in Indonesia caused by the El Niæo weather phenomenon. In late 2004 and in late 2006, we experienced low rainfall. Insufficient rainfall causes trees to produce fewer of the flowers that develop into fresh fruit bunches. We experienced reduced fresh fruit bunches in 1998, 1999, 2005 and early 2007, as a result of these droughts and low rainfall.
In the past, our plantations have been affected by haze from forest fires on the islands of Sumatera Kalimantan where all of our plantations are located. We believe that a significant number of these started by small landowners to clear their properties of underbrush. Although minor fires have some of our plantations, they were promptly extinguished by our plantation employees. We belie fires started on land adjacent to our plantations and spread to our plantations. We have implemented burning policy for land clearing activities and strictly prohibit our contractors from using fi land clearance.
Our operations may be affected by adverse weather conditions or forest fires in the future. Government may take actions against us, such as suspending our land rights, if forest fires occur plantations or the plantations of other palm oil companies. Any of these factors could have a material effect on our business, financial condition, results of operations and prospects.
An over-supply of palm oil in Indonesia may affect our results of operations.
Since 1980 there have been significant new plantings of palm tree plantations in Indonesia. reach maturity, the production and availability of crude palm oil in Indonesia may significantly demand for this increased supply does not increase correspondingly, prices of crude palm oil may due to over-supply, which could have a material adverse effect on our business, financial condition, operations and prospects.
We may be adversely affected by expansion of Plasma or Partnership Programs.
Under the Plasma and Partnership Programs in which we participate, we are committed to purchase fruit bunches from small landholders at formula prices fixed by the local government in Sumatera Kalimantan. These prices are calculated in relation to the age of the oil palm trees, monthly crude and palm kernel selling prices of companies operating the Plasma and Partnership Programs, and not higher than the prevailing market price of fresh fruit bunches. All plantations in the region Plasma and Partnership Program fresh fruit bunches at these prices. Any requirement that we purchase bunches at greater than the prevailing market price would adversely affect our margins and could material adverse effect on business, financial condition, results of operations and prospects.
We are exposed to changes in consumer dietary preferences and significant competition from other com-panies and substitute products.
Various types of edible oils and fats are competing substitutes for the palm oil products. P currently the most consumed vegetable oil worldwide, and soybean oil and rapeseed oil are the second third most consumed vegetable oils, respectively. However, this trend may change as soybean, palm rapeseed oils can to some extent be substituted for each other. If there is a significant decline
oil palm products manufactured by our customers, or if they cease to operate due to unforeseen circumstances, we may be left with a surplus of crude palm oil that we may be unable to sell within a viable time,
could have a material adverse effect on our business, financial condition, results of operations
Risks Relating to Indonesia
Political and social instability may adversely affect our business, financial condition, results of operations, cash flows and prospects.
Since the collapse of President Soeharto s regime in 1998, Indonesia has experienced a process democratic change, resulting in political and social events that have highlighted the unpredictable Indonesia s changing political landscape. These events have resulted in political instability social and civil unrest on certain occasions in recent years.
For example, since 2000, thousands of Indonesians have participated in demonstrations in Jakarta other Indonesian cities both for and against former President Wahid, former President Megawati, President Yudhoyono as well as in response to specific issues, including fuel subsidy reductions, of state-owned enterprises, anti-corruption measures, decentralization and provincial autonomy American-led military campaigns in Afghanistan and Iraq. Although these demonstrations have generally peaceful, some have been violent. In June 2001, demonstrations and strikes affected at least 19
Government mandated a 30.0% increase in fuel prices. Similar demonstrations occurred in January the Government again tried to increase fuel prices, as well as electricity rates and telephone instances, the Government was forced to drop or substantially reduce the proposed increases. In the Government implemented an approximately 29.0% increase in fuel prices. In October 2005, the ment implemented a new policy that resulted in a significant increase in fuel prices. In response, violent mass protests were organized in opposition to the increases in domestic fuel prices, and tensions have resulted from the Government s decision. This situation may lead to further political instability.
Separatist movements and clashes between religious and ethnic groups have resulted in social unrest in parts of Indonesia. In the regencies of Aceh and Papua (formerly Irian Jaya), clashes between supporters of those separatist movements and the Indonesian military. In Papua, continued separatist rebels has led to violent incidents, in the province of Malukus, clashes between religious have resulted in casualties and displaced persons, and, in the province of Kalimantan, clashes
groups have produced fatalities and refugees over the past several years. In recent years, the
made progress in negotiations with these troubled regions (including the memorandum of understanding was signed on August 15, 2005, in Helsinki between the Government and the leaders of the Aceh separatist movement, which has been implemented), but has not been able to reach a successful resolution of
outstanding issues with the various separatists and we cannot assure you that the terms of any agreement reached between the Government and the separatists will be upheld. In order to implement the memorandum of understanding, with the Aceh separatists, the Government completed a withdrawal of most of its
units and a peaceful regional election was held in December 2006.
the future and on a wider scale. We cannot assure you that any such disturbances will not have a indirect material adverse effect on our businesses, financial condition, results of operations
Domestic, regional or global economic changes may adversely affect our business, financial condition, results of operations and prospects.
The economic crisis that affected Southeast Asia, including Indonesia, beginning in mid-1997 characterized in Indonesia by, among other effects, currency depreciation, negative economic
interest rates, social unrest and extraordinary political developments. The economic crisis resulted failure of many Indonesian companies, through inability or otherwise, to repay their debts when
ourselves. Many Indonesian companies have not fully recovered from the economic crisis, and many companies are still in the process of restructuring their debt obligations or are engaged in disputes from defaults under their debt obligations. Another economic downturn in Indonesia could lead
defaults by Indonesian borrowers and could have a material adverse effect on our business, financial results of operations and prospects.
Our performance and the growth of our business are necessarily dependent on the health of the
Indonesian economy. Indonesia s gross domestic product, or GDP, grew at an annual rate of approximately 4.9% in 2004, 5.7% in 2005 and 5.5% in 2006. Commentators have identified strong oil prices and
Rupiah, which generally supports exports, as two important factors contributing to recent GDP recent GDP growth, the Government continues to have a large fiscal deficit and a high level of so Although the Indonesian banking sector continues to improve, it faces challenges in the coming historically high levels of non-performing loans. Inflation has also remained relatively high, inflation rate of approximately 6.4% in 2004, 17.1% in 2005 and 6.6% in 2006, according to Government estimates. Indonesia has also experienced significant volatility in interest rates in recent years,
material adverse impact on the ability of many Indonesian companies to service their existing indebtedness. Due to the inflationary pressures caused by oil price increases, from August 2005 to May 2006, Bank
Indonesia pursued a tight monetary policy by absorbing excess liquidity and raising interest rates. since May 2006, Bank Indonesia has reduced interest rates, most recently on May 8, 2007 when it benchmark one-month rate to 8.75%.
A loss of investor confidence in the financial systems of emerging and other markets, or other may cause increased volatility in the Indonesian financial markets and a slowdown in economic gro negative economic growth in Indonesia. Any such increased volatility or slowdown or negative gro have a material adverse effect on our business, financial condition, results of operations and
Depreciation and volatility of the value of the Indonesian Rupiah could have an adverse impact on us.
One of the most immediate causes of the economic crisis in Indonesia in mid-1997 was the depreciation and volatility of the value of the Indonesian Rupiah as measured against other currencies, such
U.S. dollar. Although the Indonesian Rupiah has appreciated considerably from its low point of Rp.16,950 per U.S. dollar in June 1998, the Indonesian Rupiah has experienced periods significant since then. Depreciation of the Indonesian Rupiah could cause significant inflation in Indonesia further decreases in economic growth. On the other hand, since a significant portion of our crude sold in U.S. dollars, a sustained and significant appreciation in the value of the Indonesian Rupiah U.S. dollar could have a material adverse effect on our results of operations.
The Indonesian Rupiah has generally been freely convertible and transferable (except that banks may not transfer Rupiah to accounts held by non-Indonesians at a bank within or outside of that lack a bona fide trade or investment purpose). However, from time to time, Bank Indonesia has in the currency exchange markets in furtherance of its policies, either by selling the Indonesian using its foreign currency reserves to purchase Indonesian Rupiah. The current floating exchange of Bank Indonesia may be modified and additional depreciation of the Indonesian Rupiah against currencies, including the U.S. dollar, may occur. The Indonesian Government may take additional stabilize, maintain or increase the value of the Indonesian Rupiah, which may not be successful.
Destabilizing events could interrupt our business.
The terrorist attacks on the United States on September 11, 2001, together with the military the United States and its allies in Afghanistan and continuing military activities in Iraq, hav substantial and continuing economic volatility and social unrest in Southeast Asia. Any additional military or other response by the United States and its allies or any further terrorist activities material adverse effect on international financial markets and the Indonesian economy.
During the last five years in Indonesia, there have been various bombing incidents directed Government and foreign governments, and public and commercial buildings frequented by foreigners, including the Jakarta Stock Exchange Building and Jakarta s Soekarno-Hatta International Airport. October 12, 2002, over 200 people were killed in a bombing at a tourist area in Bali. On August 5, bomb exploded at the J.W. Marriott Hotel in Jakarta, killing at least 13 people and injuring 149 September 9, 2004, a car bomb exploded at the Australian Embassy in Jakarta, killing more than six On May 28, 2005, bomb blasts in Central Sulawesi killed 22 people and injured almost 60 people. recently, on October 1, 2005, bomb blasts in Bali killed 23 people and injured over 100 others. Australian and U.S. government officials have indicated that these bombings may be linked to an terrorist organization. Demonstrations have also taken place in Indonesia in response to plans subsequent to U.S., British and Australian military action in Iraq. The Indonesian authorities these incidents, but have suggested that they may be linked to the activities of militant groups.
Further terrorist acts may occur in the future. Following the military involvement of the United its allies in Iraq, a number of governments issued warnings to their citizens in relation to a percei in the possibility of terrorist activities in Indonesia, targeting foreign and particularly, U.S. acts could destabilize Indonesia and increase internal divisions within the Government as it considers to such instability and unrest, thereby adversely affecting investors confidence in Indonesia
economy. Violent acts arising from, and leading to, instability and unrest have in the past had, continue to have, a material adverse effect on investment and confidence in, and the performance Indonesian economy and, in turn, on our business, financial condition, results of operations and
Labor unrest or activism could adversely affect us, our customers and Indonesian companies in general, which in turn could adversely affect our business, financial condition, results of operations and prospects.
Our plantations are labor intensive. In addition, our plantations are surrounded by plasma plantations and our relations with plasma and partnership farmers affect our field maintenance harvesting. Our operations have not been materially affected by any significant labor dispute plasma or partnership farmers in the past. However, we may, in the future, experience labor unrest, disputes or actions involving our employees, plasma farmers or partnership farmers, any of which material adverse effect on our business, financial condition, results of operations and prospects.
In addition, laws permitting the formation of labor unions, combined with weak economic conditions, have resulted, and may continue to result, in labor unrest and activism in Indonesia. On March 25,
Government enacted Law No. 13 of 2003 on Labor (the Labor Law ). The Labor Law, among other things and subject to certain procedural requirements, gives the right to employees to strike in the e negotiations between the employer and the employees have failed. Changes in Indonesia s employment regulations may also be expected in the future. Due to the active involvement of various non-gov organizations, employees awareness of Indonesian employment regulations has also increased during several years. The Labor Law, existing Indonesian employment regulations and any labor regulations adopted in Indonesia in the future may have an impact for the business environment, including ours, may limit our ability to downsize or implement flexible labor policies.
Labor unrest and activism in Indonesia could disrupt our operations or the operations of our contractors and could affect the financial condition of Indonesian companies in general, depressing of Indonesian securities on the Jakarta Stock Exchange or other stock exchanges and the value of Indonesian Rupiah relative to other currencies. Any of such events could have a material adverse business, financial condition, results of operations and prospects.
We operate in a legal system in which the application of various laws and regulations maybe uncertain.
As Indonesia is a developing market, its legal and regulatory regime may be less certain than
