D&L upgrades 2016 profit outlook
LAO family-led food and plastic input manufacturer D&L Industries has upgraded its 2016 net profit growth outlook to mid-to high-teen levels from an earlier guidance of 10 percent following a stronger than expected performance in the first semester.
In the first semester, D&L’s net profit grew by 22 percent year-on-year to P1.26 billion. In the second quarter alone, net profit rose surged by 32 percent year-on-year to P680 million.
Excluding recurring items, the company’s net profit rose by 17 percent year-on-year. This took out the non-recurring cost of P47 million booked in the second quarter of 2015 for taxes and filing costs related to the increase in authorised capital last year.
D&L’s newly appointed president and chief executive officer Alvin Lao said in a press briefing on Tuesday that full-year profit guidance had been revised higher given the strong performance in the second quarter and the first semester. Historically, D&L’s earnings in the second semester tended to be higher than the first as business momentum builds up.
In 2015, D&L posted a net profit attributable to equity holders of parent firm at P2.28 billion. A 15-19 percent growth in net profit this year is thus seen to translate to a bottom-line level of between P2.62 billion and P2.71 billion.
Lao said D&L may be able to maintain the mid- to high-teen annual profit growth level even beyond this year.
Six-month revenues were up by 8 percent year-on-year to P10.28 billion, attributed to higher sales volume across all businesses and partially from higher commodity prices in the second quarter, particularly of coconut oil. Volume growth accelerated quarter-on-quarter, led by specialty fats and oils, specialty ingredients, and oleochemicals.
High margin specialties accounted for 61 percent of D&L’s revenues in the first semester, further expanding the overall gross profit margin to 18.9 percent from 17.7 percent. The company generated higher return on equity at 19.9 percent and return on invested capital at 21.2 percent.
During the briefing, Lao said D&L was now posting around 70 percent utilization rate of its production facilities and may have to start to think about expanding capacity within the next five years.
He noted that domestic business had been growing very well while exports – which comprised 18 percent of revenues to date – would likely increase moving forward. The company’s long-term goal is to grow its export business to half of total revenues. An Asia-Pacific supply deal signed in 2014 with Ventura Foods, a leading US food manufacturer is seen helping the company achieve its goal.
In the first semester, D&L’s key business units performed as follows:
– Specialties volume was up strongly in the second quarter and overtook commodities in growth, bringing overall volume growth back to positive following recent quarters of decline. Sales were higher by 1 percent and net income was up by 15 percent year-on-year. Overall gross profit margin is close to record-highs.
-Oleochemical revenues were significantly up year-on-year on the back of strong volume growth and higher coconut oil prices. Robust transport activities continued to drive biodiesel demand. Export-driven oleochemicals have been boosted by the increasing adoption of
coconut oil into personal care, home care, and nutrition products. The second quarter also saw sequential improvement in other specialty chemicals, attributable to improving demand in paint-related businesses. Overall, sales and net income were 19 percent and 35 percent higher year-on-year, respectively.
– From specialty plastics, net income increased by 9 percent in the first half, with sales up by 14 percent year-on-year. Double-digit volume growth was sustained and margins kept steady. Longer term, the company sees the evolving trends in automotive design supporting fuel efficiency and requirements for high-performance materials favoring specialty plastics exports. This is complemented by the steady growth provided by the domestic business, which comprises 41 percent of overall sales that caters mainly to retail and food/beverage packaging.
– For aerosols, the company maintained a double-digit increase in overall volume, reflecting robust consumer activities in personal care and home care. Sales were up 10 percent year-on-year and net income increased by 27 percent, driven by margin expansion, which has continued as the company sought new markets and applications such as skincare.
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