August 02, 2016 – D&L Industries’ recurring net income reached P1.26 billion, or earnings per share of P0.18, in the first six months of 2016. This is 17% higher from the same period last year. Earnings before interest and taxes were similarly higher at P1.58 billion. Including the one-time costs on taxes and filings related to the increase in the authorized capitalization in June 2015, net income grew by 22%.
First half revenues were up 8%, primarily from 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% of revenues, further expanding the overall gross profit margin to 18.9% from 17.7%. The Company generated higher return on equity at 19.9% and return on invested capital at 21.2%.
The Company continues to make good progress moving into the high margin specialties, with double-digit growth in volume sustained in the first six months of the year, supported by a strong product pipeline of specialty ingredients, oleochemicals, and aerosols. As customer-supplier relationships become more integrated, the Company sees increasing opportunities from shifting consumer trends, changing regulations and volatile raw material costs.
Net debt at the end of the first half of 2016 was P1.79 billion. Borrowings increased in the second quarter mostly to fund working capital as raw material prices and sales volume increased. As a result, the Company shifted to a negative free cash position of P627 million. Net gearing nonetheless remains relatively low at 0.14x.
Specialties volume was up strongly in the second quarter as Oleo-fats continues to engage more with customers on new product ideas, product reformulations, and range extensions. As intended, specialties overtook commodities in growth, bringing overall volume growth back to positive following recent quarters of decline.
Sales were lower by 1% and net income was up 15% year-on-year. Overall gross profit margin is already close to record-highs but the Company sees further margin opportunities, as a result of an evolving F&B industry creating new needs in customization and localization. This will enable Oleo-Fats to capture a greater share of the value chain.
On the exports side, the strategy seeks 1) to grow with existing local customers as they expand overseas and more recently 2) to work with an established partner such as Ventura to tap new customers and new markets in Asia Pacific. Oleo-Fats has delivered well on these strategies, with export sales up 263% since 2013.
Oleochemicals and Other Specialty Chemicals
Oleochemical revenues were significantly up year-on-year on the back of strong volume growth and higher coconut oil prices. Robust transport activities continue to drive biodiesel demand. Meanwhile, export-driven oleochemicals have been boosted by the increasing adoption of coconut oil into personal care, home care, and nutrition products. Resonating with consumer demand for green, natural, and sustainable raw material sourcing, such products continue to generate significant interest from existing and new customers.
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% and 35% higher year-on-year, respectively.
Now that recovery is underway for specialty plastics volume and margins, earnings growth has picked up sequentially. Net income increased by 9% in the first half, with sales up 14% year-on- year. Double-digit volume growth was sustained and margins kept steady. The Company expects these improvements to continue into the second half of 2016.
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% of overall sales that caters mainly to retail and F&B packaging.
The Company maintained a double-digit increase in overall volume, reflecting robust consumer activities in personal care and home care. Sales were up 10% year-on-year and net income increased by 27%, driven by margin expansion, which has continued as the Company pursues more developments and seeks out new markets and applications such as skincare. Counting among its customers fast-growing homegrown consumer brands, Aero-Pack continues to add value to the customer relationships with its agility and local expertise in responding to changing market needs.
Effective this year, the dividend payout policy increased from 25% to 50% of previous year’s recurring net income, including an option to declare special dividends. This year’s payout of P1.43 billion was 167% higher from last year and was equivalent to 63% of the 2015 recurring net income. The dividends were paid last July 8 to shareholders of record as of June 20.
In addition, at the board meeting last August 1, the following management changes were approved and carried out:
Mr. Rosario has been with the D&L group since 2010, initially as Chief Financial Officer of Oleo-Fats, Inc. before moving to the parent company as Finance and Accounting Consultant during the reorganization in 2012. Prior to joining D&L, he was Senior Vice President of Finance at Nestle Philippines. He held a number of Controllership, Finance, Management Information System, and Internal Audit roles of increasing responsibility in the Philippines, Australia, the UK, and Switzerland for 27 years. He was also a part-time member of the faculty at the University of Makati.
He holds a Bachelor of Science in Business Administration and Accountancy from the University of the Philippines and an MBA from the Pamantasan ng Lungsod ng Maynila. He also completed the Program for Executive Development of the International Institute for Management Development in Switzerland and is an SBEP alumnus of the University of Asia & the Pacific. Mr. Rosario is a CPA Board Exams 5th placer.