Quezon City—(PHStocks)—D&L Industries Inc. (PSE: DNL) has reported recurring net income of PhP2.29 billion, or earnings per share of PhP0.32, in the full year 2015. This is 12% higher than the same period last year. Earnings before interest and taxes were higher by 13% year-on-year at PhP2.9 billion. Revenues were down 5% from last year.
Including the one-time gain on sale of Chemrez property, tax and filing costs related to the increase in the authorized capitalization, inventory writedown, and income tax impact of the nonrecurring items, net income for the period amounted to PhP2.28 billion, or an increase of 12% year-on- year. Given lower commodity prices, volume grew faster than revenue.
Volume growth of specialties, led by food ingredients, more than offset the decline in commodities. In total, high margin specialties accounted for 62% of revenues. Margin gains in both specialties and commodities drove overall gross profit margin from 15.8% in 2014 to 18.3% in 2015, a record high in the company’s 53-year history. Return on equity and return on invested capital were at 17.9% and 20.1%, respectively.
D&L generated PhP3.49 billion in free cash during the year, a reversal from the negative PhP157 million in 2014, as working capital benefited from the weak commodity price environment. The strong cash flow allowed for the continued reduction in debt, with net gearing further declining to 0.08x as of end of 2015 from 0.24x in 2014. As previously announced, the company’s dividend payout policy has been raised from 25% to 50% of previous year’s recurring net income.
This year, continued mix improvement and recovery of specialty plastics are expected to drive earnings growth. The port congestion that held back performance in late 2014 and first half of 2015 posed short-term challenges to the company but also created a tremendous long-term opportunity. While a setback to the specialty plastics business, it highlighted the importance of having a strong domestic supplier like D&L, particularly in such highly dynamic markets as consumer F&B.
Notwithstanding the 10% decline in revenues due to lower vegetable oil prices, the improvement in the revenue mix of Oleo-Fats drove margins higher and resulted in a 19% increase in net income for 2015. Growth was fueled by increased volume and margin expansion in Specialties, specifically specialty ingredients and food safety.
The progress made in the high margin businesses demonstrates the company’s transformation into a total food ingredients and solutions system. By going up the value chain and exploring margin opportunities through R&D investments and partnerships with companies such as Ventura, Oleo-Fats is building a strong specialty base that could weather the unpredictability of commodities.
Food R&D spend grew 82% year-on-year, enabling increased visibility and footprint in these new markets and categories that have been traditionally imported. On the back of increasing complexities in taste and logistics, more and more companies are looking to develop local supply to reduce dependence on imports. As the dominant domestic player, Oleo-Fats is positioned to take advantage of this opportunity.
Oleochemicals and other specialty chemicals
Oleochemicals grew robustly in 2015, with oleochemical specialties adding customers and entering new markets. Biodiesel meanwhile benefited from favorable macroeconomic conditions and also saw strong growth in volume throughout the year.
Combined, oleochemicals accounted for 65% of revenues of this division, with blended margins continuing to expand as growth in higher margin oleochemical specialties accelerated. This mix improvement, fueled by growth in niche coconut oil applications in personal care, home care, and health and nutrition, is expected to further enhance the business’ margin profile moving forward.
Overall volume was still higher than 2014, with solid growth in oleochemicals offsetting a weaker performance of other specialty chemicals, which mostly cater to the construction and manufacturing industries. Chemrez revenues were up 2% and net income was higher 30% year-on- year.
Late 2014 until first half of 2015, the port congestion not only limited raw material importations but also impeded exports, resulting in volume losses. With situation at the ports vastly improving by early 2015, the decline bottomed out in the first quarter of 2015. By the end of 2015, quarter-on- quarter volume growth was positive for three consecutive quarters.
While full-year volume was still down from 2014, the rate of decrease in revenue and net income has decelerated, indicating a gradual rebound from the port congestion. Overall, revenues and net income were 7% and 4% lower than last year, respectively. Margins were steady year-on-year.
Adding to the recovering demand from the wire harness business, which is expected to work off of a low base in 2016, we continue to explore developments in new applications to build out a more robust high margin, high growth pipeline of products across various end uses.
The one-week holiday ban during the APEC disrupted raw material and production supply and affected volume in the fourth quarter. Year to date, volume was flat. The year 2015 was also coming off an unusually strong 2014, which included non-recurring sales of high margin items.
Overall, revenues and net income were up 15% and 5%, respectively. Taking out the impact of the APEC truck ban and the one-off sales in 2014, Aeropack saw good volume growth throughout 2015, driven by new applications coming to market, mostly in the home care and industrial space.