Golden Agri-Resources Ltd’s Latest Earnings: A Slippery Slide

Golden Agri-Resources Ltd (SGX: E5H) reported its fiscal first-half earnings yesterday morning. The reporting period was from 1 January 2015 to 30 June 2015.

As a brief introduction, the company’s an integrated palm oil outfit with large oil palm plantations (a total planted area of 484,472 hectares as of end-June 2015) in Indonesia. The firm manages the entire value chain for palm oil, from the growing of the palm fruit to the production of consumer end-products that are based on palm oil.

You can catch up with Golden Agri-Resources’ first-quarter earnings in here.

Financial highlights

Let’s look at how Golden Agri-Resources fared in the first-half of 2015:

  1. Total revenue dropped 14% year over year to US$3.38 billion while gross profit shrank by 28% to US$526 million over the same period.
  2. The pain intensified at the bottom-line with net profit plunging 58% from US$131 million to US$56 million. The company had suffered mainly from lower average crude palm oil (CPO) prices and lower production output.
  3. Golden Agri-Resources ended the first-half of 2015 with US$460 million in operating cash flow, US$223 million in capital expenditures, and thus US$237 million in free cash flow (operating cash flow minus capital expenditures). It is a considerable improvement from the negative US$34 million in free cash flow (US$155 million in operating cash flow and US$189 million in capital expenditures) that was generated a year back.
  4. Meanwhile, Golden Agri-Resources’ balance sheet has improved slightly compared to a year ago. As of 30 June 2015, the firm had an adjusted net debt to equity ratio of 0.20; the selfsame figure was at 0.22 as of 30 June 2014. (Adjusted net debt here refers to interest bearing debt less cash, short-term investments and liquid working capital.)

To sum it all up, Golden Agri-Resources’ top- and bottom-line performance had been rather dismal. The bright note here is that the palm oil outfit has still managed to generate positive free cash flow and strengthened its balance sheet a little.

Operational highlights

Golden Agri-Resources has three main business divisions, namely Plantations and Palm Oil Mills, Palm and Laurics, and Oilseeds.

For the first-half of 2015, the first segment, Plantations and Palm Oil Mills, had recorded a 24% year over year decline in revenue to US$773 million. This also partly resulted in a 36% decline in EBITDA (earnings before interest, taxes, depreciation, and amortization) to US$211 million.

Apart from the lower crude palm oil prices, the segment’s results were also hurt by lower production metrics as a result of dry weather conditions in certain regions where Golden Agri-Resources has its plantations. Here’re some of the important production metrics:

  1. Fresh fruit bunches (FFB) production dipped by 3% to 4.58 million tonnes compared to a year ago.
  2. FFB Yield (given in tonnes per hectare) had slipped from 10.7 in the previous year to 9.9, representing a 7% decline.
  3. Palm product output sank by 7% year over year to 1.35 million tonnes.
  4. Lastly, palm product yield (measured in tonnes per hectare) came in at 2.79, down 8% from a year ago.

Moving on to the Palm and Lauric segment, revenue there fell by 10% to US$3.04 billion despite an 8% increase in sales volume to 4.36 million tonnes. There was a bright spot though as EBITDA rose 38% to US$55 million against the same period a year ago as a result of an improvement in the EBITDA margin from 1.2% to 1.8%. The segment’s performance had become better as downstream integration continues its progress.

Last but not least, for the Oilseeds segment, a 4% drop in sales volume to 612,000 tonnes had resulted in a 25% fall in revenue to US$319 million. But, the EBITDA picture had strengthened considerably with the financial metric spiking from a negative US$43.6 million a year ago to a positive US$5.2 million in the reporting period.

A future outlook

Things look rather bleak for Golden Agri-Resources at the moment, judging from its latest financial report card. But, Franky Widjaja, the firm’s chairman and chief executive, remains upbeat. The following are Widjaja’s comments given in the earnings release on his outlook for the palm oil industry and his company:

“We are experiencing a low cycle period in palm oil prices. However, we are of the view that industry outlook remains positive for the longer term. Short-term catalysts to CPO price are expected to come from lower output resulting from the El Nino condition, and increased domestic demand with the implementation of biodiesel mandates and subsidy by the Indonesian government.

Meanwhile, we continue to focus on optimising our integrated value chain, yield improvement, cost efficiency and implementation of our sustainability initiatives.”

Golden Agri last changed hands at S$0.32 on Thursday. Based on that price, it is trading at a lofty 79 times its trailing earnings.

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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 James Yeo doesn’t own shares in any companies mentioned.