8 Things I Learned From the 2020 Wilmar International (SGX:F34) AGM
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Wilmar International (SGX: F34) is an integrated agribusiness company with business activities in oil palm cultivation, oilseed crushing, edible oils refining, sugar milling, manufacturing of consumer products, as well as flour and rice milling.
Wilmarâs integrated agribusiness model encompasses the entire value chain of the agricultural commodity business including cultivating, processing, merchandising, and manufacturing a wide range of branded agricultural products.
Since a fall in Wilmarâs share price due to the COVID crisis, it has rebounded by more than 30% from its March low to $3.82 today (as at 19 June 2020).
I was curious whether COVID-19 had an impact on Wilmarâs business since it operates in the essential agri-business industry.
Hence, I tuned in to Wilmarâs virtual AGM to find out more and how the company performed in FY2019.
So here are 8Â things I learned from Wilmarâs 2020 AGM:
1. Wilmar’s Decrease in Revenue
Wilmarâs revenue decreased by 4.2% to US$42.6 billion.
Although Wilmarâs sales volume increased by 3.8% in FY2019, its total revenue was hampered by lower commodity prices in FY2019.
On the other hand, despite a drop in revenue, net profit increased by 15.0% to US$1.3 billion in FY2019.
The increase in net profit was led by the Tropical Oils segment which reported a 54.1% increase in profit. This was due to strong performances in the segmentâs merchandising activities and downstream processing margins.
Wilmarâs Oilseeds & Grains segment was affected by the African swine fever outbreak in China, partially causing the segment to record a 27.2% decrease in profit in FY2019. This explains the drastic shift in the respective segmentsâ share of profit in FY2019.
2. Wilmar’s New Revenue Segment Classification
From Q1 2020, Wilmar will report a new revenue segment classification to better reflect Wilmarâs core businesses.
Prior to this, Wilmar reported five business segments mainly based around different agricultural commodities: Tropical Oils, Oilseeds and Grains, Sugar, Others, and Associates and Joint Ventures.
From Q1 2020 onwards, Wilmarâs four reporting segments will now be based on the types of products: Food Products, Feed and Industrial Products, Plantation, and Others.
3. Wilmar’s Resilience Amidst COVID-19
Wilmar was not and is not expected to be significantly affected by COVID-19.
As the company operates mainly in the food products industry â which is an essential service â the restrictions and lockdowns caused by the pandemic are not expected to have a major impact on its business. Household consumption for Wilmarâs products increased with movement restriction measures globally â demand for Wilmarâs consumer products (e.g. rice, flour, and cooking oil) increased by 35% Year over Year (YoY) in Q1 2020.
However, the Group saw a 20% reduction in demand for its medium pack and bulk products, which are mainly for Hotel/Restaurant/Catering (HORECA) and food processing industries, as fewer people dined out.
Nevertheless, COVID-19 has led to increased volatility in the commodities markets and has made Wilmarâs operating environment more challenging, especially in China, where Wilmar derived 55% of its revenue from in FY2019. COVID-19âs impact on Wilmarâs supply chain is not expected to be significant.
4. Wilmar’s Business Outlook Amidst These Uncertain Times
CFO Charles Loo gave an outlook on Wilmarâs business amidst such uncertain times.
He shared that Wilmarâs consumer products business is expected to continue its strong growth in Q2 2020 as households continue to ramp up its demand for consumer products due to movement restrictions.
On Wilmarâs HORECA business, he shared that the easing of lockdown measures globally, especially in China, will see its gradual recovery.
Feed demand should also improve with the recovery of economic activities and increase in pig production in China. Though Wilmarâs Plantation segment will be affected by lower palm oil prices, downstream operations are expected to continue doing well.
Wilmar is cautiously optimistic that its second-quarter operations will not be significantly impacted if Chinaâs economy recovers as expected. However, Beijing recently saw a surge in new COVID-19 cases, prompting authorities to extend lockdowns in the capital.
5. Update on the Public Listing of Wilmar’s China Operations
The CFO said that the public listing of its China operations, Yihai Kerry Arawana (YKA) Holdings, is still on track.
Wilmar expects the listing to be approved in the second half of 2020.
The CFO added that 10% of the proceeds from the newly created shares will be used to fund its capital expenditures (CapEx) expansion in China.
Wilmar also has the intention to sell more shares to the public in the future to improve YKAâs liquidity.
6. Why Wilmar Owns Stake in Perennial Holdings
A shareholder with a pre-submitted question asked why Wilmar, an agri-business, has a 20% stake in a property company, Perennial Holdings.
The shareholder also asked if Perennial yields positive returns for the company.
Wilmar chairman Kuok Khoon Hong replied that Perennial Holdings is involved in several large-scale transport-oriented projects and mixed-use projects including the building of hospitals and retirement homes in China.
This synergises well with Wilmarâs plan to develop plant proteins and ready-to-eat meals in China.
The chairman added that Wilmar knows the value of its projects and is confident that its investment in Perennial will yield a âgood returnâ.
7. Downstream Food Businesses
A shareholder with a pre-submitted question asked if Wilmar would take advantage of the current COVID-19 pandemic to make acquisitions in downstream food businesses besides sugar, flour, rice and cooking oil.
The chairman replied that the company is not on the hunt for more acquisitions at the moment since it has strong organic growth opportunities.
8. Wilmar Return on Equity (ROE)
A shareholder with a pre-submitted question asked why Wilmarâs Return on Equity (ROE) has been consistently below 10% over the past five years.
In fact, Wilmarâs ROE has never been above 8.0%.
The chairman explained that Wilmar has invested in projects with long gestation periods, hence the less-than-ideal ROE figures. However, Wilmarâs projects are beginning to bear fruit as seen from Wilmarâs steadily increasing net profits despite the challenging business conditions.
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