What Does the Future Hold for Dividend Stock Wilmar International Limited? – Part 2

Welcome to the second part of the series on Wilmar International Limited’s  (SGX: F34) business. In my previous article, I had covered important aspects of Wilmar’s revenue.

In here, I’ll take a close look at Wilmar’s profits, free cash flows, and balance sheet.

As a brief recap: Wilmar is Asia’s leading agribusiness group and is engaged in a variety of businesses.

According to its corporate profile, the company has 450 manufacturing facilities and a distribution network which spans 50 countries. Wilmar’s businesses are divided into seven main business segments: Palm and laurics (the most important segment in terms of revenue contribution), oilseeds and grains, consumer products, plantation and palm oil mills, sugar (milling), sugar (merchandising) and others.

Another closer look

After studying Wilmar’s various revenue segments, we should also find out how its profit picture looks like for the individual segments.

Wilmar Profit Before Tax

Source: Wilmar’s earnings report

Over the five years examined (2010 to 2014; Wilmar’s financial year coincides with the calendar year), Wilmar’s profit before tax (with eliminations excluded) has dropped by a total of 10%.

The drop in the company’s profit before tax is mainly down to the plantations and palm oil mills business segment. That’s a little troubling as the segment, despite the drop in its profit before tax over the years, is still the one providing the best pre-tax profit margins amongst Wilmar’s other business segments.

Let’s take a look at the agribusiness’s operating cashflow and capital expenditures next.

Wilmar OCF FCF

Source: Wilmar’s earnings report

From 2010 to 2014, Wilmar has managed to generate positive free cashflow (operating cashflow minus capital expenditures) in three out of those five years. In particular, Wilmar has clocked in positive free cashflow in the past two years due to growing operating cashflow and declining capital expenditures – these are trends investors may want to hope can continue.

Wilmar’s ability to produce cash from its business is important given its significant level of debt. This brings me to the firm’s balance sheet.

Wilmar Cash and Debt

Source: Wilmar’s earnings report

The high level of borrowings that Wilmar has is evident from the chart just above which gives a view of the agribusiness giant’s balance sheet over the past five years. Over the period under study, Wilmar has maintained a significant net debt (total borrowings minus total cash) position; the firm ended 2014 with US$1.95 billion in cash and cash equivalents and a hefty $22.4 billion in borrowings.

Eagle-eyed readers might notice that Wilmar actually has US$7.4 billion in total cash and bank balances (this includes the aforementioned cash and cash equivalents of US$1.95 billion) as at 31 December 2014. But, it must be noted that US$5.45 billion of that total was mostly pledged for secured loans.

Foolish Summary

This two-part series can give us an overview of Wilmar’s business. But as a sprawling conglomerate, it may take more than two articles to fully understand the depth of Wilmar’s business.

That said, here are some important things we can glean about Wilmar from the series:

  1. Wilmar is a sizable company whose revenue growth has stalled since 2011.
  2. The diversity and nature of Wilmar’s products may provide some stability in its revenue (the firm’s revenue may have stalled, but it hasn’t declined much), but it will still come to naught if Wilmar is unable to generate consistent profits and free cash flow.
  3. 2013 and 2014 have seen the company turn up an improved performance in terms of generating free cash flow so this is one area investors may want to keep an eye on.
  4. Another important part of Wilmar’s business fundamentals to observe would be its balance sheet given the firm’s growing debt levels.

At its current share price of $3.28, Wilmar has a dividend yield of 2.3% (based on its dividend in 2014) and is valued at a trailing price-to-earnings ratio of 12.5.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.