How Wilmar International Limited Makes Its Money

As it is with any other stock, if you can understand how Wilmar International Limited (SGX: F34) makes its money, you would be able to better appreciate the important factors that can influence the performance of its business.

In 2015, the company had made US$38.8 billion in revenue through four main business segments, namely, Tropical Oils, Oilseeds & Grains, Sugar, and Others. Let’s have a closer look at each segment and their contributions.

Wilmar business segment table
Source: Wilmar Annual Report 2015

As you can see from the table above, Wilmar makes the majority of its revenue from its Oilseeds and Grains segment. Oilseeds include products such as soybean and sunflower, while grains include rice and flour.

Wilmar is the largest soybean crusher in China and has one of the largest four flour mills globally. The manufacturing side of the Oilseeds and Grains segment gave it US$11.54 billion in revenue while the consumer products end produced US$6.16 billion.

The Tropical Oils segment is where Wilmar houses its palm oil-related business. It is the next largest segment for the company and it can be further split into the Plantation and Manufacturing sub-segments. The Plantation sub-segment is tiny for Wilmar as it produced only US$56.5 million in revenue in 2015 whereas the Manufacturing segment had generated the rest.

Wilmar ended 2015 with 240,956 hectares of planted area in its plantations. Roughly 69% of the company’s planted area reside in Indonesia. Another 24% is in Malaysia and the rest is in Africa.

Sugar is where Wilmar conducts its sugar milling, refining, merchandising, branding and distribution of sugar products. The company manufactures and distributes fertiliser products and providers ship-chartering services under the Others segment.

As a commodities business, Wilmar’s performance is tied closely to changes in commodity prices, which are in turn influenced by supply and demand forces.

In 2015,  Oilseeds & Grains did well when higher volume and stable crushing margins helped the segment post a 98% jump in profit before tax to US$689.8 million. On the flip side, Tropical Oils suffered from lower crude palm oil (CPO) prices which caused the segment’s profit before tax to drop 44% to US$545.6 million.

Investors may want to note that back in February this year, the US Department of Agriculture had issued forecasts for lower prices for grains and oilseeds in the year ahead assuming normal weather conditions.

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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 Ong Kai Kiat does not own shares in any companies mentioned.