November 10, 2017 – D&L Industries’ recurring net income reached P2.12 billion, or earnings per share of P0.30, in the first nine months of 2017. This is 10% higher than last year. Earnings before interest and taxes were higher by 10% at P2.71 billion.
In the third quarter alone (3Q17), earnings and volume growth started to pick up following lackluster growth in the second quarter. Net income in 3Q17 increased by 15% to P771 million. Meanwhile, high margin specialty products (HMSP) growth started trending back to its historical average growth of 7% y-o-y.
“This quarter showed us returning to normal growth,” said President and CEO Alvin Lao, “The flattish growth we saw in the second quarter was a temporary effect of the high earnings base in 2016 which was boosted by election-related spending. Moving forward, we continue to see robust
growth across all our segments. This will be supported by the still vibrant domestic economy, strong growth in our export sales, and our continued investments in R&D.”
In the first nine months of the year (9M17), export sales grew by 74% y-o-y. The contribution of exports to total sales now stands at 25%, from just 18% in full year 2016. This represents a record high for the company. With the company’s partnerships with Ventura and Bunge maintaining pace, the food ingredients segment is now the biggest contributor to exports. The segment contributed 45% to total export sales compared with just 19% in full year 2016.
Meanwhile, net income margin in 9M17 compressed by 1.4 ppts y-o-y to 10.6% largely due to lower commodity margins compared to 2016 levels. Nonetheless, commodity gross profit margins showed signs of improvement, inching up by 0.1 ppt to 3.8% in 9M17 from 3.7% in the first six months of the year (6M17). HMSP gross profit margins stood at 25.2% in 9M17, up 0.4 ppt since the start of the year. HMSP accounted for 58% of revenues while the remaining 42% was accounted for by commodities in the first nine months of the year.
The company’s return ratios continue to improve. In 9M17, annualized Return on Equity (ROE) expanded by 0.7ppt to 19.6% while annualized Return on Invested Capital (ROIC) expanded by 0.8ppt to 20.8%. Meanwhile, the balance sheet remains robust with net gearing at 20% and interest cover at a comfortable 25x. As of end-September 2017, net debt stood at P2.9 billion with average cost of debt at 3.5% (inclusive of DST). The company generated positive free cash flow of P808 million for the period.
The food ingredients segment grew its earnings by 7% in the first nine months of the year. Total volume in 9M17 increased by 2% with HMSP registering a lower volume drop of just 3% vs. a 5% drop in first half of this year (1H17). Meanwhile, commodity food volumes grew by 6% y-o-y.
Blended GPM contracted by 1.8ppts in 9M17, given lower straight oil margins compared to 2016 levels. In 3Q17, however, straight oil margins inched up by 1 ppt from 2Q17. Meanwhile, HMSP margins expanded by 0.6ppt y-o-y in 9M17.
Oleochemicals and Other Specialty Chemicals
Chemrez increased its earnings by 12% in the first nine months of the year despite weakness in the biodiesel business. Biodiesel (a low margin commodity) saw its volume decline by 26% in 9M17, an improvement from the 33% volume drop in 1H17. Meanwhile, the HMSP segment saw good growth, with volumes increasing by 14% in 9M17. Moving forward, biodiesel should become a smaller part of the business as the HMSP segment continues to expand.
The specialty plastics group posted 7% y-o-y earnings growth in the first nine months of the year. This is a recovery from the flat earnings growth recorded in 1H17. In the third quarter alone, total volume grew by 14% y-o-y while margins expanded by 1 ppt. Volume growth in 3Q17 was seen
across all segments as volume starts to pick up following a sluggish 1H17. Overall, the weakness in Engineered Polymers was offset by the growth in the Colorants and Additives segment.
Aerosols remains the fastest growing segment of the company, posting 26% y-o-y earnings growth in the first nine months of the year. This was mainly driven by volumes growing by 5% growth and margins expanding by 2.5 ppts. Higher margins resulted from a shift to higher value and more R&D-intensive products. The aerosols group now contributes 7% to D&L’s overall
consolidated income, compared with 3% five years ago.