MARKET DEVELOPMENT
Moody\'s: Sliding Palm Oil Price Hits Golden Agri\'s Interim Results
Moody\'s: Sliding Palm Oil Price Hits Golden Agri\'s Interim Results
07/08/2013 (Moodys.com) - Moody's Investors Service says that Golden Agri Resources Ltd's (GAR) results for the first six months of 2013 have been adversely impacted by weaker palm oil prices, but remain within the parameters of its Ba2, stable rating. The results show revenue up by 8.8% in H1 2013 compared with H1 2012, while the year on year improvement in Q2 2013 was even greater at 25.4%. Nevertheless, reported EBITDA was 22.5% lower in H1 2013 and fell away by 30.1% in Q2 2013, year on year.
"Of the major oil palm companies, we would expect GAR to be one of the hardest hit by the weaker palm oil prices seen in early 2013 compared to a year earlier, given its vast plantation area relative to the current capacity of its downstream activities," says Alan Greene, a Moody's Vice President -- Senior Credit Officer.
"Nevertheless, while the company points to the average CPO prices being 25% weaker in H1 2013 compared with H1 2012, the average price for the June quarter was only 0.4% lower than the average for the March quarter. The main problem has been rising costs in the plantations, at a time when GAR has significantly expanded its low margin downstream capacity" adds Greene, who is also Lead Analyst for GAR.
The company also noted that some tree stress has been apparent following last year's large harvest. Overall, the fresh fruit bunch (FFB) production for the half year to June is only 2% lower than in H1 2012. However, the yield of FFB per hectare in Q2 2013 was down by 13% compared to the yield in Q2 2012, offsetting the 3.1% year on year increase in mature plantation area.
The reported EBITDA margin in the June quarter of 8.3% is substantially lower than the 14.7% achieved in the March quarter. The revenue of the Indonesian businesses grew by 23.9% in Q2 2013 over Q1 2013 as downstream activity picked up, while gross margin shrank from 30.3% in Q1 2013 to 20.4% in Q2 2013 - a function of rising labour costs and the cost of raw materials to feed the refineries. However, over the first six months of 2013, inventories fell by $219 million compared to a rise of $140 million in H1 2012, resulting in a higher reported cash flow from operations of $261 million in H1 2013 compared with $111 million in H1 2012.
This relatively weak set of quarterly results brings GAR closer to the triggers that might indicate a downgrade but there is no pressure on the rating. CPO prices have stabilized, at around $700/ton locally or $850/ton delivered Europe, in recent weeks and the performance of GAR's Chinese edible oil and snack food operation, where competition and price controls have limited profits, has improved slightly, albeit a small part of the overall GAR business.
GAR continues to invest heavily in downstream activities such as logistics and refining as well as increasing its plantation holdings and the $400 million of convertible bond raised last October has now been spent.
After planting 5,600 hectares in H1 2013, GAR's planted area has increased by a net 1,154 ha since December 2012 and stands at 464,580 ha. GAR is expected to complete the acquisition of 16,000 ha of plantation in H2 2013. However, the largest increase in plantation area is likely to be in Liberia where GAR is invested through The Verdant Fund LP. This vehicle holds a license to develop up to 220,000 ha, the process taking some twenty years to complete.
"Moody's expects GAR to bounce back in H2 2013, when palm oil production is seasonally stronger, but CPO prices may struggle to recover if palm oil output is high, and soy and other oilseed crops also have good harvests, unless there is a large improvement in demand from China and India, the main consumers of palm oil", adds Greene.
"However, Moody's will monitor developments and watch for excessive leverage as the investment in the value chain occurs, noting that gross debt at June 2013 of $2,054 million is already some $648 million or 46% greater than a year earlier, even as net profits for H1 2013 were some 41% lower than in H1 2012", continues Greene.
Golden Agri, registered in Mauritius, is the largest listed oil palm plantation company in Indonesia. Listed on the Singapore Stock Exchange in 1999, it mainly operates in Indonesia and China and is 49.95% owned by the Widjaja family.
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
"Of the major oil palm companies, we would expect GAR to be one of the hardest hit by the weaker palm oil prices seen in early 2013 compared to a year earlier, given its vast plantation area relative to the current capacity of its downstream activities," says Alan Greene, a Moody's Vice President -- Senior Credit Officer.
"Nevertheless, while the company points to the average CPO prices being 25% weaker in H1 2013 compared with H1 2012, the average price for the June quarter was only 0.4% lower than the average for the March quarter. The main problem has been rising costs in the plantations, at a time when GAR has significantly expanded its low margin downstream capacity" adds Greene, who is also Lead Analyst for GAR.
The company also noted that some tree stress has been apparent following last year's large harvest. Overall, the fresh fruit bunch (FFB) production for the half year to June is only 2% lower than in H1 2012. However, the yield of FFB per hectare in Q2 2013 was down by 13% compared to the yield in Q2 2012, offsetting the 3.1% year on year increase in mature plantation area.
The reported EBITDA margin in the June quarter of 8.3% is substantially lower than the 14.7% achieved in the March quarter. The revenue of the Indonesian businesses grew by 23.9% in Q2 2013 over Q1 2013 as downstream activity picked up, while gross margin shrank from 30.3% in Q1 2013 to 20.4% in Q2 2013 - a function of rising labour costs and the cost of raw materials to feed the refineries. However, over the first six months of 2013, inventories fell by $219 million compared to a rise of $140 million in H1 2012, resulting in a higher reported cash flow from operations of $261 million in H1 2013 compared with $111 million in H1 2012.
This relatively weak set of quarterly results brings GAR closer to the triggers that might indicate a downgrade but there is no pressure on the rating. CPO prices have stabilized, at around $700/ton locally or $850/ton delivered Europe, in recent weeks and the performance of GAR's Chinese edible oil and snack food operation, where competition and price controls have limited profits, has improved slightly, albeit a small part of the overall GAR business.
GAR continues to invest heavily in downstream activities such as logistics and refining as well as increasing its plantation holdings and the $400 million of convertible bond raised last October has now been spent.
After planting 5,600 hectares in H1 2013, GAR's planted area has increased by a net 1,154 ha since December 2012 and stands at 464,580 ha. GAR is expected to complete the acquisition of 16,000 ha of plantation in H2 2013. However, the largest increase in plantation area is likely to be in Liberia where GAR is invested through The Verdant Fund LP. This vehicle holds a license to develop up to 220,000 ha, the process taking some twenty years to complete.
"Moody's expects GAR to bounce back in H2 2013, when palm oil production is seasonally stronger, but CPO prices may struggle to recover if palm oil output is high, and soy and other oilseed crops also have good harvests, unless there is a large improvement in demand from China and India, the main consumers of palm oil", adds Greene.
"However, Moody's will monitor developments and watch for excessive leverage as the investment in the value chain occurs, noting that gross debt at June 2013 of $2,054 million is already some $648 million or 46% greater than a year earlier, even as net profits for H1 2013 were some 41% lower than in H1 2012", continues Greene.
Golden Agri, registered in Mauritius, is the largest listed oil palm plantation company in Indonesia. Listed on the Singapore Stock Exchange in 1999, it mainly operates in Indonesia and China and is 49.95% owned by the Widjaja family.
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308