By Gaurav Raghuvanshi
The Wall Street Jurnal
13 August, 2010
SINGAPORE—Wilmar International Ltd., the world’s biggest palm oil trader by volume, unexpectedly reported a 15% decline in its second quarter net profit due to tighter margins and decreased valuation of convertible bonds.
Pretax profit reported by the Singapore-listed company’s plantations and palm oil mills business declined 24% to $76.6 million mainly due to the lower average price of crude palm oil and lower yield because of wet weather in Sumatra, which affected harvesting.
Sales of the company’s palm and laurics—chemicals derived from palm oil and used for making cosmetics and confectionary—grew 8% but pretax profit fell 32% to $127.2 million on lower margins due to tighter supply of crude palm oil.
Net profit for the quarter was $344.5 million, compared with $407.2 million a year ago, Wilmar said in a statement to the Singapore Exchange. Revenue rose 18.3%, to $6.8 billion.
The average of six estimates in a Dow Jones Newswires poll was for a net profit of $433 million and revenue of $7.1 billion.
Net profit in the second quarter was affected by a negative change in valuation of $41.7 million for convertible bonds, partially offset by a net income from other investments of $6.2 million, the statement said.
Margins were lower but “satisfactory” across most business segments after significant margin enhancement in the same quarter last year following the global financial crisis, the statement said.
“Normally second half production of palm is higher. When production is higher, plants run at higher capacity, and hopefully margins will improve,” Chief Executive Kuok Khoon Hong told reporters on the sidelines of an analyst briefing in Singapore. “I won’t worry too much about quarter-to-quarter margins.”
Consumer products pretax profit fell 49% on year to $31.5 million after an exceptional second quarter last year when prices had increased sharply.
Oilseeds and grains, however, logged a 47% increase in pretax profit to $145.8 million as sales grew 27%, the statement said.
“With crush margin turning more positive in China and [as] we enter the higher cooking oil demand season in the third quarter, this should benefit Wilmar. Our more positive crude palm oil outlook, supported by tighter supply-demand outlook and upside support from soybean oil, should also [help] see stronger trading gains” in the second half of the year and in 2011, J.P. Morgan said in a note to clients after the earnings were announced.
Wilmar remains optimistic about growth in business in Asian economies such as China, India and Indonesia despite uncertainties in the global economic environment and is planning a major expansion in the sugar business, Mr. Kuok said in the statement.
Wilmar “will continue to leverage on its well-established presence in these markets for growth,” he said.
Wilmar announced last month that it will buy Sucrogen, the sugar and renewable energy business of Australia’s CSR Ltd., for 1.75 billion Australian dollars ($1.57 billion) and will use the raw sugar exporter’s skills to develop sugar production in Indonesia.
