Wilmar's Q1 net profit down 41% amid palm oil price fall

Wilmar International's plantation in Sabah, Malaysia. The company's pre-tax profit was down by 34.5 per cent in tropical oils, where lower crude palm prices and poor downstream margins eroded the improvements in production yield and sales.
Wilmar International's plantation in Sabah, Malaysia. The company's pre-tax profit was down by 34.5 per cent in tropical oils, where lower crude palm prices and poor downstream margins eroded the improvements in production yield and sales.PHOTO: WILMAR INTERNATIONAL

Weakness in sugar business also affects company's earnings

Lower crude palm oil prices and weakness in its sugar business both took their toll on agribusiness giant Wilmar International's first-quarter earnings, it disclosed yesterday.

But its management has largely shrugged off these challenges, choosing instead to focus on the threat of Washington-Beijing trade tensions. Wilmar clocked a net profit of US$203.3 million (S$272 million) for the three months to March 31, down by 40.6 per cent on the previous year.

The tumble came even though stronger oilseeds and grains sales helped to push group revenue higher by 5.7 per cent, to US$11.17 billion. "I think it's, overall, a satisfactory performance in a quarter marked by price volatility," Wilmar chief financial officer Ho Kiam Kong told an evening earnings call. "And I think the market will continue to be driven by outcomes on trade discussions."

Pre-tax profit fell by 34.5 per cent in tropical oils, where lower crude palm prices and poor downstream margins eroded the improvements in production yield and sales.

Meanwhile, profits dropped by 16.9 per cent in oilseeds and grains, and the sugar business posted a widening pre-tax loss of US$39 million on weaker milling operations.

But Wilmar called sugar's struggle "seasonal".

  • AT A GLANCE

  • REVENUE: US$11.17 billion (+5.7%)

    NET PROFIT: US$203.3 million (-40.6%)

Mr Ho told the briefing that Australian milling is expected to ramp up in the second half of the year.

Chairman and chief executive Kuok Khoon Hong said in a media statement that "we are cautiously optimistic that performance for the rest of the year will be satisfactory".

Some uncertainty lies in China, where Wilmar is the second-largest soya bean crusher and serves the pig-farming market. The group's oilseeds and grains segment enjoyed higher sales volumes and prices in the first quarter, but prospects could be dimmed by a planned 25 per cent import tariff on American soya beans.

Mr Kuok said: "Even though performance of our oilseed crushing business will not be affected in the short term, a prolonged stand-off between China and the United States would affect the utilisation of our crushing plants."

But he also noted that soya bean softness could be offset in part by better-performing flour and rice businesses. And, said Mr Ho: "There are measures we have taken, or are actually taking, to reduce the demand or the purchasing of US soya beans."

Chinese trade fears aside, Mr Ho was unconcerned when asked about the potential for a hit from the shock electoral outcome in Malaysia, where Wilmar holds large palm oil plantations. "If anything, our cost base is in ringgit," he said, referring to market expectations of currency weakness.

Wilmar, which DBS strategists last week picked as a favoured consumer goods stock, lost 1.23 per cent to $3.21 before the announcement.

A version of this article appeared in the print edition of The Straits Times on May 11, 2018, with the headline 'Wilmar's Q1 net profit down 41% amid palm oil price fall'. Print Edition | Subscribe