Latest Earnings from Golden Agri-Resources Ltd: Earnings Soar Despite Lower Revenue

Golden Agri-Resources Ltd (SGX: E5H) reported its fiscal first-quarter earnings last Friday evening. The reporting period was from 1 January 2016 to 31 March 2016.

As a brief introduction, the company’s an integrated palm oil outfit with large oil palm plantations in Indonesia (a total planted area of 485,400 hectares as of March 2016). The firm has a presence in the entire value chain of the palm oil industry, from the growing of the palm fruit to the production of consumer end-products that are based on palm oil.

Financial highlights

Here are some of the latest financial figures from Golden Agri-Resources:

  1. Total revenue in the first-quarter of 2016 slipped by 3.8% year-over-year to US$1.49 billion.
  2. But, the firm’s EBITDA (earnings before interest, taxes, depreciation and amortisation) had increased by 10.7% to US$142 million.
  3. Consequently, core net profit soared by 65% to US$40 million, driven by substantial growth in the downstream Palm and Laurics segment that offset lower crude palm oil.
  4. Net profit also saw a sharp U-turn from the negative US$3 million seen in the same quarter a year ago to US$94 million in the reporting quarter. The reversal of a US$35 million foreign exchange loss to a US$52 million gain had helped.
  5. Despite the better profit picture, Golden Agri-Resources’ balance sheet has deteriorated considerably compared to a year ago. As of 31 March 2016, the firm had an adjusted net debt to equity ratio of 0.49; the selfsame figure was at just 0.20 at 31 March 2015. (Adjusted net debt here refers to interest bearing debt less cash, short-term investments, and liquid working capital.)
  6. Golden Agri-Resources ended the reporting quarter with US$88.8 million in operating cash flow, US$46.9 million in capital expenditures, and thus US$41.9 million in free cash flow (operating cash flow minus capital expenditures). The selfsame figures a year ago were US$132.3 million, US$84 million, and US$48.3 million respectively.

To sum it all up, Golden Agri-Resources had seen its profit jump, but, investors should also watch out for the firm’s modest decline in positive free cash flow and increase in debt.

Operational highlights

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

The first, Plantations and Palm Oil Mills, had recorded an 11% year-over-year decline in revenue to US$304 million. The segment’s EBITDA followed suit, dropping by 24% to US$76 million. The poor results can be attributed to lower production output in the quarter that was caused by the severe El Nino weather condition last year.

Moving on to the Palm and Laurics segment, revenue there fell by 10% to US$1.26 billion despite a 3% increase in sales volume to 2.09 million tonnes. There was a bright spot though as EBITDA rose by 179% to US$62 million against the same period a year ago. The segment’s performance continued to improve as downstream integration progresses.

Last but not least, for the Oilseeds segment, a 47% gain in sales volume to 366,000 tonnes resulted in a doubling of EBITDA from US$2 million to US$4 million. But, this segment continues to be a small part of the firm’s portfolio.

Valuation and Prospects

Franky O. Widjaja, Golden Agri-Resources’ chairman and chief executive, had the following to say in the earnings release on the firm’s outlook:

“As expected, the industry output was severely impacted by the El Niño last year. Our expanded downstream assets have supported GAR during this difficult period resulting in a good set of results for the Company. We will stay focused on value chain optimisation across our integrated business model to enhance long term shareholder value of the Company.

Notwithstanding periods of volatility, long-term fundamentals of the industry remain promising. The B20 biodiesel mixture mandate by the Government of Indonesia is progressing, providing long term support to the palm oil industry.”

Golden Agri last changed hands at S$0.37 last Friday. Based on that price, it is trading at 44 times 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.