Wilmar International Limited’s Latest Earnings: Is There Finally a Rainbow after the Rain?

Wilmar International Limited  (SGX: F34) announced its fiscal first-quarter results on Thursday for the three months ended 31 March 2015. At first glance, it looks like a great set of numbers from “Asia’s leading agribusiness group”; Wilmar’s net profit for the quarter had soared by 49.1% year on year.

This is a welcome respite for Wilmar’s shareholders after the company had reported three straight years of profit declines from 2012 to 2014. Here are some of the highlights from the company’s latest set of nnumbers.

Some housekeeping matters

One important thing to note here is that Wilmar has made changes to its segment reporting.

According to Wilmar, the changes “will align the reporting segments in accordance with the core of Wilmar’s strategy, a resilient integrated agribusiness model that encompasses the entire value chain of the agriculture commodity processing business, from origination and processing to branding, merchandising and distribution of the agriculture products.”

From now on, Wilmar will report its results under four segments:

  1. Tropical oils (Plantation and Manufacturing); this is where Wilmar houses its palm oil and laurics-related businesses.
  2. Oilseeds and Grains (Manufacturing and Consumer Products); this area is where Wilmar handles the processing, merchandising, branding, and distribution of a wide range of agriculture products like non palm and lauric edible oils, oil seeds, flour, corn, and wheat, among others.
  3. Sugar (Merchandising, Manufacturing and Consumer Products); as its name suggests, this segment comprises Wilmar’s activities in sugar milling, refining, merchandising, branding, and distribution.
  4. Others; this includes Wilmar’s fertilizer products and ship-chartering services.

Financial highlights

For the quarter, Wilmar actually saw an 8% year-on-year decline in its revenue to US$9.4 billion. However, due to strong improvement in its Oilseeds & Grains segment (more on this later), together with a jump in earnings from its associates, the firm was able to grow its pre-tax profit by 50.6% year-on-year to US$309.9 million.

Consequently, Wilmar’s net profit had surged by 49.1% (as mentioned earlier) to US$241.2 million. The agribusiness outfit’s earnings per share (EPS) came in at 3.8 US cents, up 52% from 2.5 US cents seen a year ago.

Wilmar has made a number of improvements to its balance sheet for the quarter ended 31 March 2015 when pitted against the same period a year ago.

The firm’s net debt level (total borrowings minus total cash) had decreased from US$12.65 billion to US$11.24 billion; the debt-to-equity ratio had fallen from 0.83 to 0.73; and the net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortisation) ratio had gone down from 5.8 to 4.9. Wilmar’s finance costs had also decreased by 21% year-on-year in the quarter from US$147.2 million to US$116.4 million on the back of a lower effective interest rate.

Operational highlights

Wilmar International had achieved sales volume of 5.55 million tonnes in the quarter for the Tropical oils segment, a 1% drop from a year ago. This was due to a lower production yield from its Malaysia plantation. The segment’s revenue fell by 19% to US$3.92 billion on the back of lower crude palm oil prices; this eventually led to a 44% decline to US$152 million in pre-tax profit for the segment.

Elsewhere, the Oilseeds & Grains segment experienced a 10% increase in sales volume to 6.36 million tonnes. Revenue had fallen by 3% to US$4.459 billion, but better crushing margin and a lower production cost had helped the segment post a multi-fold spike in profit from US$13.6 million a year ago to US$166.1 million.

The Sugar segment saw a strong 28% increase in sales volume to 1.809 million tonnes which helped drive a 9% uptick in revenue to US$743.3 million. But unfortunately, weaker performance from Wilmar’s Indonesia refineries had caused the segment to experience steeper losses; the segment’s pre-tax profit had declined from –US$54 million a year ago to –US$68 million.

What’s in store next

Kuok Khoon Hong, the Chairman and CEO of Wilmar, gave the following comments on the company’s outlook in the earnings release:

“Crush margins are expected to remain positive going into mid-2015. Consumer Products will continue to grow globally with reasonable margins. Although operating conditions for Tropical Oils will remain challenging, we believe we will be able to overcome the current difficult environment, especially if the Indonesian government implements its proposed support policy for biodiesel. Overall, we are cautiously optimistic that second quarter performance will be satisfactory.”

Put another way, Wilmar seems to be expecting another good quarter to come along and that’s welcome news for shareholders. As mentioned earlier, Wilmar has been experiencing rainy days, so to speak, for a number of years now with its profit declines; let’s hope the company’s strong start to 2015 is a signal of better things to come going forward.

Wilmar International closed at S$3.20 on Friday. At that price, it is trading at a 13.4 times its trailing earnings and offers a dividend yield of 2.3% (based on its annual dividend of S$0.075 per share in 2014).

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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 owns Wilmar International Limited.