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Wilmar Profit Jumps 87%

WilmarAsia’s leading agriculture-business group Wilmar (SGX: F34) posted an 87% jump in second-quarter profit to US$219m compared to a year ago. If non-operating items were excluded, the company’s profit would have increased by 42% year-on-year to US$245m instead.

Quarterly revenue slipped 5.4% to US$10.4b on the back of significantly lower palm prices.

Wilmar has five main business segments, namely, Palm & Laurics, Oilseeds & Grains, Consumer Products, Plantations & Palm Oil Mills, and Sugar.

Palm & Laurics saw revenues decline by 15% to US$5.09b from a year ago, while sales volume rose 10% to 6.19m MT (1 MT is equivalent to 1,000 kg) due to increased capacity in Indonesia.

Wilmar had managed to sell a larger quantity of downstream value-added products for the segment, leading to better margins and a 40% growth in pre-tax profits to US$224.5m.

In the Oilseeds & Grains segment, sales dipped by 3% year-on-year to US$3b predominantly due to a 2% drop in sales volume to 4.5m MT. The company had managed to eke out a pre-tax profit of US$15.3m for the quarter, an improvement from the US$40m pre-tax loss last year.

Wilmar had seen a price dip in edible oils and flour in its Consumer Products segment in April and May this year resulting in lower selling prices. But it was an overall net-positive for the company.

The corresponding increase in demand for the products – due to the price reductions – resulted in revenues rising by 9% to US$1.51b on the back of a 22% increase in sales volume to 1.09m MT. Pre-tax profits for the Consumer Products segment had improved by 67% to US$29.9m due to lower raw-material costs.

The Plantations & Palm Oil Mills segment saw its top line sink 24% year-on-year to US$315m while pre-tax profits dropped 34% to US$52.7m. Management cited “lower palm oil prices and lower production yields” as reasons for the sales-and-profit decline.

Palm oil producer Golden Agri-Resources (SGX: E5H) had reported decreases of at least 25% in average crude palm oil (CPO)
prices in its latest earnings release, highlighting the difficulties that Wilmar also faces in the operations of its Plantations & Palm Oil Mills segment.

As for the lower production yields, dry weather conditions in Kalimantan and Sumatra in addition to lower crop trends in Sarawak were the main culprits.

In the Sugar segment, there are two different sub-segments, namely, Milling and Merchandising & Processing. Together, they brought in revenues of US$1.06b, an increase of 26.7% over last year’s result.

The top-line growth was mainly driven by higher merchandising activities and larger contributions from Wilmar’s Indonesian refineries that are operating under the Merchandising & Processing sub-segment.

In addition, the Sugar segment had also logged a lower pre-tax loss of US$30.3m for the second quarter of 2013, compared to a pre-tax loss of US$60.2m experienced last year.

The pre-tax losses were mainly attributed to the seasonal nature of the Milling sub-segment, which normally sees maintenance-works carried out on the milling plants in the first half of the year.

Wilmar’s balance sheet has improved judging from the decline in the net debt to equity ratio from 0.93 last year to 0.86 currently.

The company has declared an interim dividend of S$0.025 per share for the half-year, an increase of 25% from last year’s pay-out of S$0.02 for the corresponding period.

Wilmar’s Chairman and Chief Executive Officer, Kuok Khoon Hong, commented on the quarter’s performance: “The current low CPO prices and declining refining margins in Indonesia add to an already challenging operating environment.

He added: “However, the benefits of lower raw material prices for downstream products and investments made in recent years, such as the sugar business and expansion into oleochemicals and specialty fats, will have positive contributions for the Group. Together with the strong business model we have built over the years, we will be able to overcome these difficult conditions.

Shares of Wilmar closed at S$3.15 on Tuesday, representing a trailing price-earnings ratio of 11.2 and a dividend yield of 1.6% based on 2012’s full-year payout.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.