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Wilmar's quarterly profit rises despite market volatility

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Wilmar International, which operates Asia's largest integrated agribusiness from its base in Singapore, reported first quarter earnings earlier on Tuesday this week.

Net profit rose by 8% year on year while revenues fell by 4% compared to the first quarter of 2015.

The tropical oils, oilseeds and grains divisions enjoyed steady performance, while sales in the sugar division improved year on year.

The business made a pre-tax profit of $321.3m on revenues of $9bn in the three months ended March 31 2016, compared to $296.6m and $9.41bn year on year. The lower revenues largely reflect falling world commodity prices.

However, core net profit for the quarter fell to $222.4m after contributions from joint ventures and associates were taken into account – primarily from JV businesses in China and tea interests in India - plus a one-off impairment of $22.7m.

El Nino provides business headwinds

The company's palm oil production volumes were down, a result of the El Nino weather system, but tropical oils saw profitability rise by 8% as lower raw crop values reduced production costs and increased margins at its processing plants.

The oilseeds & grains division saw a 2% profit rise, driven by higher rice and flour sales. Although this positive result was partly offset by lower soybean crushing margins in what is a competitive sector.

The Sugar division reduced its losses to $18.2m from the $68m in Q1 2015. Losses were due to seasonal plant maintenance in the first half of the year for the Australian milling business. The volume of sugar sold in the period rose by 8% to 2m tonnes.

Challenging outlook remains

Kuok Khoon Hong, the Wilmar chief executive, expects operating conditions to remain challenging over the next three month period.

While rising palm oil prices will benefit the Group's plantation business, this will affect the downstream processing activities through higher feedstock costs and typically lower processing margins.

Oilseed crush margins are predicted to come under pressure, as a result of excessive soybean arrivals into China in the coming months, against a background of volatile oilseed markets.

In addition, the recent volatility in sugar prices will have an effect on Wilmar's sugar division. Earlier this week the ICE Sugar futures market hit an 18 month high on supply fears from key producers. Lower supply and higher prices typically constrain processing margins for trade houses.

By Jamie Day

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