The African Swine Fever (ASF) epidemic across south east Asia has cut Wilmar’s profitability at the second quarter and first half stages of its financial year, while lower commodity prices have reduced revenues.
Singapore-based Wilmar, Asia’s largest agribusiness, attributes its weaker performance to lower crush margins, as the effect of ASF in reducing swine numbers is reflected in lower demand for soybean meal as an animal feed ingredient. But there was partial compensation from strong performances from the Group’s Consumer Products and Oleochemicals divisions.
Group chairman and chief executive Kuok Khoon Hong expects crush margins to recover over the rest of the year and is seeking a Chinese stock market listing to increase its exposure to growing demand from markets in Asia and Africa.
Wilmar’s Oilseeds & Grains (Manufacturing & Consumer Products) division made a second quarter pre-tax profit of $59.2 million, compared to $290.2m for the same quarter in 2018 when crush volumes and margins were high. This is despite a 2% increase in the volume of oilseeds and grains handled to 8.9m tonnes in the quarter.
The Group’s Sugar (Milling, Merchandising, Refining & Consumer Products) division also made a pre-tax loss - $69.4m – in the latest quarter, following a $46.2m loss in the same three-month period of 2018. It primarily blames the weaker result on the integration of the Shree Renuka Sugars business which it acquired in June 2018, although there was an overall 3% decrease in sugar sales volumes to 2.7m tonnes.
Palm oil yields fall 10%
The Tropical Oils (Plantation, Manufacturing & Merchandising) division saw pre-tax profit rise by 15% to $177.3m. Higher manufacturing and merchandising sales were partially offset by lower crude palm oil prices and production yields in the plantation business. Yields dropped 10% year-on-year to 5.2 tonnes per hectare due to unfavourable weather.
Finally, Wilmar’s Others segment returned to profit with a pre-tax profit of $6.2m in the latest quarter, following a year ago loss of $26.3m. Positive contributions from its Shipping and Fertiliser businesses aided the recovery.
Mr Kuok Khoon Hong has revealed that the Group has applied for a listing of its China operations on the Shenzhen Stock Exchange, which he hopes will lead to a better understanding and appreciation of the Group’s China operations.
“In China, the Group has more than 300 plants in 62 locations with many top brands and a vast marketing and distribution network. We believe such an operation is not easily replicated and will cost significantly more to build today.
Future of food demand in Africa and Asia
“We have built similar operations in many countries including Indonesia, India, Vietnam and in many African countries. We strongly believe that these operations, when fully mature, will enjoy similar good returns in the future. We will continue to expand our operations in our core businesses as we believe the future for food demand is in Asia and Africa.
"Barring any unforeseen circumstances, we expect the margins of our crushing business and other segments to perform better in the remaining half of the year.”
The Wilmar Group posted a net profit of $150.9m on revenues of $9.78bn in the three months to June 30th 2019, compared to $316.4m and $10.75bn in the same period of 2018 – respective falls of 52% and 9%. At the first half stage, net profit was $407.9m on sales of $20.23bn ($519.7m and $21.89bn, 21% and 7.6% lower).