What Was Behind Wilmar International Limited’s Recent Quarterly Loss?

Back in July, Wilmar International Limited (SGX: F34) released a statement warning that it would report a loss for the second-quarter of 2016.

True enough, when the company announced its results for the quarter, it showed a net loss of US$220 million. It was Wilmar’s first ever quarterly loss since it became a listed entity in Singapore’s stock market via a reverse takeover in 2006.

Let’s take a look at what caused the company to bleed red ink.

But first, a quick background on Wilmar for some context: Wilmar is an agricultural company and operates through four main business segments, namely, Tropical Oils, Oilseeds and Grains, Sugar, and Others. It is also one of the largest companies in the local market and is a part of the Straits Times Index (SGX: ^STI).

Why the ink was red

In Wilmar’s earnings release for the second-quarter of 2016, the company commented that its loss can be “largely attributed to the manufacturing business within Oilseeds and Grains which was affected by the highly volatile soybeans market.”

But Kuok Khoon Hong, Wilmar’s chairman and chief executive, had some reassuring words to share:

“Notwithstanding the one-time loss in 2Q2016, the Group’s integrated agribusiness model remains intact and resilient.”

Also as reported by a research house that attended the earnings briefing, management stressed that the loss was a one-off and should not repeat. The research house added that Wilmar may tweak its risk management policy to better fit the market’s volatile conditions.

Another view on the red ink

The US-based agriculture giant Archer-Daniels-Midland Company is one of Wilmar’s largest shareholders (as of 9 March 2016, the former owned a 20% stake in the latter).

In Archer-Daniels-Midland’s latest quarterly earnings conference call – held a few days before Wilmar released its 2016 second-quarter earnings – the company’s chief executive and chairman, Juan Luciano, had this to say on the reasons behind Wilmar’s second-quarter loss:

 “So, yes, I am on the Board of Wilmar… The significant loss was triggered by extremely volatile movements in soybean future prices and board crush margins in Q2 caused by rapidly evolving crop conditions in Argentina…

The Wilmar risk management process includes having risk limits and loss limits and having stop losses on positions, like every risk company. And with the abrupt movements in prices, these stop losses were triggered in Q2…

…[W]e do believe that hopefully it’s a one-off situation and if you think about Wilmar that participate in a very — they are a very large crusher and they participate in a very volatile part of the world, this is the first quarterly loss since their IPO in 2006. So it’s not that this is a common occurrence and as unfortunate as it is, we do believe that hopefully it’s a one-off.”

A Foolish conclusion

So, from the looks of it, Wilmar’s chief executive as well as one of its largest shareholders do not seem to be too worried about the quarterly loss. They see it as a one off event and as part of the natural risks of being involved in Wilmar’s particular type of business.

What do you think?

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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 Esjay owns shares in Wilmar International.