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3 Things Investors Should Know About First Resources Ltd’s Latest 2016 Results

First Resources Ltd (SGX: EB5) is one of the leading palm oil producers in the region. It currently manages over 200,000 hectares of oil palm plantations across the Riau, East Kalimantan, and West Kalimantan provinces of Indonesia.

Just last week, the company reported its 2016 full year results. Let’s look at three useful pieces of information that investors may want to know from the announcement:

1. The overall numbers

Here’s a table showing some important numbers from First Resources’ income statement for 2016 and 2015:

First Resources 2016 income statmeent
Source: First Resources 2016 full year earnings presentation

We can see that First Resources’ business performed strongly in 2016. Not only was there a strong jump in revenue, the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization), net profit, and underlying net profit all posted double-digit growth too.

The strong performance is driven mainly by higher CPO (crude palm oil) prices and higher refinery and processing volumes, offset by lower plantation and mill volumes.

2. Operational statistics

There are a few tables to look at when it comes to First Resources’ operational statistics, which are just as important to watch as the financial numbers. The first table here shows the company’s plantation-related statistics:

First Resources 2016 factory efficiency numbers
Source: First Resources 2016 full year earnings presentation

In 2016, First Resources’ fresh fruit bunches (FFB) production fell 5.1%, driven mainly by a lower FFB yield per hectare. The company’s yield was affected by the El Nino weather phenomenon, which produced adverse conditions for the palm oil crop.

The following table gives us an idea of the efficiency of the company’s factory operations:

First Resources 2016 production numbers
Source: First Resources 2016 full year earnings presentation

Turns out, the CPO and PK (palm kernel) production volumes were both down in 2016, partly as a result of lower volumes of FFB processed and also a lower CPO extraction rate.

3. Improvement in the balance sheet

Here’s a table showing a number of debt-related numbers for First Resources:

First Resources 2016 balance sheet numbers
Source: First Resources 2016 full year earnings presentation

The important thing to note is that while First Resources’ asset, equity, and cash values grew in 2016, its borrowings fell. Putting it all together, the company’s gearing (net debt divided by equity) declined from 37% in 2015 to 20%. This is a big improvement in the strength of the company’s balance sheet.

Moreover, the company’s ability to service its debt has improved. This is shown in how the EBITDA/Interest Expense ratio had climbed from 9.0 to 10.1.

In sum, First Resources had a strong performance in 2016, primarily due to rising CPO prices. Looking ahead, the company expects low CPO inventory to support the current level of CPO prices. Meanwhile, First Resources also expects its production levels to strengthen in 2017 due to yield-recovery and contributions from newly-mature plantations.

All that being said, it’s worth keeping in mind that CPO prices can be unpredictable. If CPO prices fall, the company’s business performance may be negatively impacted.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.