May 9, 2014 / 9:41 AM / 4 years ago

UPDATE 1-Wilmar Q1 profit falters as financing imports hit China soy crush margin

* Q1 net profit slides 49 pct to $161.8 mln

* CEO says likely faced worst-ever soy crush margins in Q1

* Hedging losses in sugar business also weigh on results (Adds CEO comments from briefing, share price reaction)

By Rujun Shen

SINGAPORE, May 8 (Reuters) - Heavy soybean imports by traders in China for financing purposes led to Singapore-based Wilmar International Ltd likely suffering its worst-ever crushing margins, dragging down its quarterly results.

Wilmar, part of Malaysian billionaire Robert Kuok’s business empire, posted a 49 percent slide in first-quarter net profit to $161.8 million even as revenue for the three months inched up 0.7 percent to $10.3 billion.

Wilmar’s oilseeds and grains division swung into a loss on a pre-tax basis, as soybean crush margins in China were negative, caused by a combination of oversupply and lower demand.

“The last quarter (4Q13) we had the best-ever crush margins, and this quarter (1Q14) was probably the worst I have experienced,” Kuok Khoon Hong, chairman and chief executive officer of Wilmar, told an earnings briefing.

“One of the problems this time was huge imports by financial traders.”

Importers ship in commodities, from base metals to agricultural products, using dollar-denominated letters of credit (LCs), and use the yuan proceeds from selling such commodities to fund their investments, taking advantage of the lower interest rates on the LCs.

Kuok expected the crush margins to improve in the third quarter, adding that imports by financial traders were also sizeable in palm oil, though recently some traders started to have trouble obtaining LCs.

Losses in the sugar business and lower palm refining margins also weighed on earnings of Wilmar, the world’s top palm oil processor.

Its palm and laurics division, the top revenue contributor, recorded a 6.5 percent rise in revenue but pre-tax profit dropped 25.9 percent as refining margins were suppressed by tighter supply of crude palm oil and increased industry capacity, the company said.

Wilmar’s consumer products and plantation businesses recorded profit gains in the quarter.


The sugar division’s loss widened to $54 million from $13.6 million a year earlier on deeper losses in sugar milling.

“The higher losses in 1Q14 were mainly due to the negative timing effects of unrealised sugar hedges,” said Wilmar, forecasting losses for the milling business in the second quarter as well.

The company has been aggressively expanding its sugar business, buying up a major stake in India’s Shree Renuka Sugars Ltd and forming a joint venture in Myanmar earlier this year.

Kuok said it prefers an integrated sugar business that includes milling, refining, trading and consumer by-products, rather than acquiring bits and pieces of assets.

Wilmar declined to elaborate on the $1.2 billion bid it made in April jointly with Hong Kong-listed First Pacific Co Ltd to acquire Australia’s Goodman Fielder Ltd, which dismissed the bid as too low. But Kuok said Wilmar will no longer be interested in a deal if the Australian company sells some of its businesses.

Wilmar shares ended down nearly 4 percent on Friday, recovering partially after sliding as much as 6.3 percent to a three-month low of S$3.13. The shares are down about 6 percent so far this year, underperforming the 2.7 percent gain in the benchmark Singapore Straits Times Index. (Editing by Muralikumar Anantharaman)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below