Golden Agri-Resources Ltd’s Latest Earnings: What’s Next After A Two-Third Decline In Profit?

Golden Agri-Resources Ltd (SGX: E5H) had reported its fiscal fourth-quarter results for the year ended 31 December 2014 on Friday.

The company’s a large palm oil plantation outfit with a total planted area of more than 470,000 hectares in Indonesia. It’s also a vertically integrated company as its business operations range from the planting and cultivation of the palm fruit, to the production of palm oil-based consumer products like cooking oil and margarine.

With these as a backdrop, let’s dig into Golden Agri-Resources’ latest set of numbers.

Financial overview

It has been a disappointing year for Golden Agri-Resources’ shareholders. Although the palm oil producer was able to boost its revenue by 16% to US$7.6 billion in 2014, profit-growth eluded the firm; Golden Agri-Resources saw a 63.5% decline in profit to US$113.6 million in 2014, driven in part by a 20.8% jump in cost of sales to US$6.31 billion.

The poor corporate performance also led the company to cut its dividend by close to 50% from 1.1 Singapore cents per share in 2013 to only 0.585 cents per share this year.

Despite the fall in profit, Golden Agri managed to achieve a multi-fold jump in operating cash flow from US$18.3 million in 2013 to US$349.2 million in 2014.

On the balance sheet front, the firm had US$3.068 billion in total borrowings and US$1.395 billion in cash, short-term, and long-term investments as at end-2014; this is a step backwards from a year ago when the figures were US$2.581 billion and US$1.262 billion respectively.

Operational highlights

Production wise, Golden Agri was able to grow its production figures for fresh fruits brunches (FFB) by 8% to 9.73 million tonnes for 2014. Both the company’s crude palm oil (CPO) and palm kernel oil (PKO) production figures also grew by 7% each to 2.39 million tonnes and 566,000 tonnes respectively.

Golden Agri-Resources grew its mature planted area from 430,711 hectares at end-2013 to 440,578 hectares at end-2014. The firm ended 2014 with a total planted area of 472,837 hectares, up slightly from 471,100 hectares seen a year ago.

The company’s age profile for its trees is reasonable with the average age at 14 years; this is a slight increase from the average age of 13 at end-2013. For some perspective, the prime production age for oil palm trees are from 7 to 18.

Golden Agri-Resources has three main business segments: 1) Plantations and Palm Oil Mills (the upstream and mid-stream portion within the palm oil industry); 2) Palm and Laurics (the downstream side of things); and 3) Oilseeds and Others (takes care of businesses dealing with oil-producing crops).

The first segment had a decent year in 2014. Golden Agri-Resources was able to increase production while reducing its operating cost. The end result is a 10% increase in revenue to US$1.93 billion and a 15% increase in EBITDA (earnings before interest, taxes, depreciation and amortisation) to US$562 million for this segment.

Golden Agri-Resources’ downstream Palm and Laurics business also experienced higher sales volume and revenue for the year; the segment booked revenue of US$6.5 billion in 2014, up 26% from a year ago. Unfortunately, due to a much lower refining margin and other start-up costs for new facilities and business expansion, the segment only earned EBITDA of US$57 million, down 60% from 2013.

Coming to the last segment – the Oilseeds business – this is where Golden Agri-Resources has really struggled. The segment saw a sharp drop in both revenue and sales volume compared to 2013; sales slipped by 25% to US$845 million while volume sank 19% to 1.354 million tonnes. The weaker sales performance led the segment to record an EBITDA of a negative US$60 million.

Management claims that the oilseed industry in China (the business segment’s main geographical market) remains challenging and also stated that they are “reviewing our business model and strategy for oilseed business in China to stabilise its performance.” That doesn’t sound very positive at all to my ears.

Foolish Summary

So wrapping things up, Golden Agri-Resources’ results haven’t been too pleasing in 2014, but it’s still looking at expansions of both its upstream and downstream oil palm business; the total capital expenditures planned for 2015 is about US$300 million for these two segments.

As for the oilseeds business, management would need to think of how to turnaround or offload this business or else it may continue to be a drag on the firm’s overall performance going forward.

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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 writer Stanley Lim doesn't own shares in companies mentioned.