9 things I learned from Wilmar International’s 2016 AGM

In my opinion, Wilmar has one of the best AGMs around. Held at the prestigious Shangri La hotel, the variety of food at their lunch buffet always packs quite a punch. But then again, that’s not what we are really here for (except for some AGM junkies who only go for the free lunches).

I love Wilmar’s AGM because it’s always very insightful and the company usually holds its Investors’ Day straight after the AGM where shareholders can stay back to ask questions and find out more about Wilmar’s business and next stage of growth.

I am always fascinated by how brilliant Chairman Kuok Khoon Hong is – especially his foresight and extraordinary business acumen. According to Forbes, Mr Kuok is among the top 10 richest people in Singapore, so maybe, just maybe… by being here I can get to have some of his “wealth energy” rub off on me.

Needless to say, we’re regular attendees of Wilmar’s AGMs and we covered the annual meetings for both FY2013 and FY2014 previously.

Wilmar is one company that owns a fully integrated value chain which gives it advantages many other palm oil companies don’t have. Owning the entire value chain also helps Wilmar better withstand economic cycles and fluctuations in commodity prices and stabilize its earnings. However, Wilmar is more than just a palm oil company and the company is looking to duplicate the success of its palm oil business model in other commodities such as sugar and oil seeds and grains.

So besides palm oil, the scary part about Wilmar (for its competitors anyway!) is that it is a leader in its own right in each of its business segments:

  • Tropical Oil – Wilmar is one of the world’s largest palm oil plantation owners with a planted area of 240,956 hectares. They are also the world’s largest processor and merchandisers of palm and lauric oils.
  • Oil Seeds and Grains – Wilmar is the largest oilseed and grain crusher in China. It processes seeds and grains like soy beans, grape seeds, walnuts, sesame, sunflower seeds, etc.
  • Fertilizers – Wilmar is one of the largest players in Indonesia with operations in both production and distribution.
  • Consumer Products – Wilmar is the world’s largest producer of consumer packed edible oil with it products distributed in countries like China, Indonesia, Vietnam, India.
  • Sugar – Wilmar is the largest sugar producer and refiner in Australia and one of the top sugar refiners in Indonesia.
  • Shipping – Wilmar owns 40 liquid bulk vessels and 14 dry bulk vessels to help improve the flexibility and efficiency of its overall logistic operations

Now that you have an idea of how large a business operation Wilmar is, here are 9 quick takeaways I got from Wilmar’s latest AGM:

  1. Overall revenue and profit was down for FY2015 due to lower commodity prices. The good news is that volume growth has been strong and Wilmar is gaining more market share in the various markets it operates in.
  2. Wilmar is strictly against burning policies and will not hesitate to stop buying from suppliers who are caught burning in Indonesia.
  3. Due to the changes in accounting policies, namely the amendments to FRS 16 Property Plant and Equipment and FRS 41 Agriculture, Wilmar’s re-valuation of its biological assets works out to $3,300 per hectare, which is way below the average transacted price of $10,000 per hectare. That is to say, due to need to follow accounting policies, Wilmar believes its valuation of its biological assets is extremely conservative.
  4. Wilmar is a very strong cash flow company. Its net cash generated from operating activities is $2.23 billion. This is due to its profitable operations and their ever-reducing working capital requirements.
  5. When asked about their recent repurchase of Wilmar stock, Chairman Kuok mentioned that they will look to buy back shares as long as they feel that it is sensible to do so — especially when it is trading below the value of which they think is cheap. He further added that $3 is the benchmark for them to repurchase shares. (The management did so during the year, repurchasing 75.3 million of its ordinary shares for US$148.9 million.)
  6. One shareholder asked about the sugar taxes recently imposed by various countries around the world (i.e. South Africa, Denmark, Norway, United Kingdom) and whether it will affect Wilmar’s growth in the sugar industry. Mr Kuok replied that the taxes are in developed countries and Wilmar is actually big on developing countries instead. He feels that the taxes shouldn’t have a significant impact on Wilmar’s sugar operations.
  7. One shareholder was particularly concerned about Wilmar’s growth. He asked about Indonesia’s push to ban new palm oil operations after last year’s haze-belching forest fires. According to Mr Kuok, Wilmar’s main expansion is in Africa and not in Indonesia and they are looking forward to grow their plant area in West Africa.
  8. Just as how Singaporeans have changed their buying habits over the years and consume higher quality products, there is a growing middle class in China who strive for quality consumer products as well. This is a market which Wilmar wishes to address and the company has since diversified into consumer packed flour and rice businesses in China, India, Vietnam and Indonesia.
  9. Mr Kuok firmly believes that consumer products are Wilmar’s next stage of growth citing that the consumer product segment is a $100 billion business compared to refineries ($20 billion) and plantations ($10 billion). Wilmar is therefore looking to build and expand its consumer products business in the coming years by leveraging on the advantage of their integrated chains and market presence in several different countries.

Read more: 4 Reasons How Vertical Integration Allows Wilmar to Dominate its Industries

(Photo: Wikipedia)

Kenji Tay is the chief marketing officer and a co-founder of The Fifth Person. Like many of us here, he’s an avid long-term investor after being forced to listen to countless two-hour investment conversations between Victor and Rusmin at the dinner table. It kinda rubs off eventually.

2 Comments

  1. Gursharan Singh

    June 23, 2016 at 11:02 am

    Due to the changes in accounting policies, namely the amendments to FRS 16 Property Plant and Equipment and FRS 41 Agriculture, Wilmar’s re-valuation of its biological assets works out to $3,300 per hectare, which is way below the average transacted price of $10,000 per hectare. That is to say, due to need to follow accounting policies, Wilmar believes its valuation of its biological assets is extremely conservative.

    My comments:

    UNDER VALUATION OF ASSETS CAN RESULT IN ‘CREATION’ OF SECRET/HIDDEN RESERVES WHICH CAN ‘DISTORT’ THE FAIR VALUE OF THE COMPANY AND THUS CAN REDUCE THE MARKET VALUE OF SHARES.
    The impact could be to ‘provide’ an opportunity for substantial shareholders to PRIVATIZE the company AT BELOW ITS REAL VALUE. This method may have been used in some some PROPERTY companies with large land banks where the offer price was substantially lower than the market value of the shares.
    Another case is of selling some of the land banks and use the EXTRAORDINARY profits to buffer the share prices and keep them higher by showing profit when the company may have even made a loss. This method has been used recently by some companies.
    The sad part is that this is in line with FRS which approves the ‘creation’ of secret/hidden reserves. Thus this may give the perception that the relevant Regulatory Authorities approve this ‘creations’.

  2. Celine Mak

    June 23, 2016 at 4:57 pm

    Wilmar-What is the absolute value i.e. total sum of the undervaluation of the biological assets at $3,300 per hectare vs transacted price of $10,000 per hectare?

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