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Indofood Agri Resources Ltd’s Latest Earnings: Brighter Days Ahead after a Strong 2014

Indofood Agri Resources Ltd (SGX: 5JS), a leading player in the palm oil industry, had released its fiscal fourth quarter results for the year ended 31 December 2014 last Friday.

The company, like industry peer Golden Agri-Resources Ltd (SGX: E5H), is also a vertically-integrated palm oil outfit.

Apart from owning more than 240,000 hectares of oil palm plantations in Indonesia, Indofood Agri also owns “leading market shares in the Indonesian branded cooking oil, margarine and shortening markets.” In addition, the firm also has interests in other agricultural crops like rubber and sugar.

With these as a backdrop, let’s dig into Indofood Agri’s latest results.

Financial highlights

The company ended the year on a positive note. Indofood Agri had clocked record revenue of Rp14.96 trillion in 2014, up 13% from a year ago.

With a better gross margin of 29.2% in the reporting year (it was 24.1% in 2013), the company managed to grow its net profit for shareholders by 45% to Rp759 billion.

Indofood Agri’s profit-growth was also accompanied by a 28% increase in operating cash flow from Rp2.166 trillion in 2013 to Rp2.783 trillion. High-levels of capital expenditures in 2014, amounting to Rp3.06 trillion, had left the firm with negative free cash flow for the year. The capital expenditures made in the year were for, amongst others:

  1. A 150MT/day palm kernel oil plant in Riau
  2. A 80MT/hour mill in South Sumatra
  3. Two 40MT/hour mills in South Sumatra and West Kalimantan
  4. Two 45MT/hour mills in Kalimantan
  5. A 200MT/day margarine plant in Tanjung Priok
  6. Improvements made to cane crushing capacity in Brazil

On the balance sheet front, Indofood Agri saw slight deterioration as its net debt (total interest-bearing borrowings net of cash) to equity ratio was at 0.26 at end-2014, an increase from 0.22 as of end-2013.

Operational highlights

Indofood Agri’s top- and bottom-line growth was mainly due to improvements made in its business operations over the year.

There were increases in planted area for most of the firm’s major corps as you can see in the table below.

Indofood Agri Resources plantation size

Source: Indofood Agri’s earnings presentation

The company’s current age profile for its trees is reasonable with the average age at 13; this is a slight increase from the average age of 12 seen at end-2013. For some perspective, oil palm trees have a prime production age of between 7 and 18.

Indofood Agri’s aforementioned growth in planted area was also accompanied by an increase in its production statistics.

Fresh fruit bunches (FFB) output increased by 16% from 3.76 million tonnes in 2013 to 4.37 million tonnes. As for crude palm oil (CPO) and palm kernel oil (PKO) production figures, they grew by 18% and 16% to 956,000 tonnes and 218,000 tonnes respectively.

A combination of a larger planted area, better production, and stronger selling price for its products (in Rupiah terms) had helped Indofood Agri to end 2014 with some strong financial results.

Future plans

Going forward, the company plans to focus on its expansion of its oil palm and sugar plantations in Indonesia. Five more mills have also been planned for the next two years. Indofood Agri is continuing its plan of diversifying the types of crops it’s working with and has more experimental crops planned in the future.

The company is also implementing more technology to better improve the yield and productivity of its operations.

Given what we’ve seen so far, it seems that the future looks bright for Indofood Agri. However, investors have to note that the company is still in the commodities business and there is an inherent volatility in the nature of such industries due to the inability of companies within to control the selling prices of their products.

Although the outlook for Indofood Agri looks promising as per its latest earnings announcement, investors should be prepared for sudden downswings in the future as well.

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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 any company mentioned.