Quezon City—(PHStocks)—D&L Industries Inc.‘s (PSE: DNL) recurring net income reached PhP1.66 billion, or earnings per share of PhP0.23, in the first nine months of 2015. This is 13% higher than the same period last year. Earnings before interest and taxes were higher by 12% year-on-year at PhP2.08 billion.
Including the one-time costs on taxes and filings related to the increase in the authorized capitalization in June 2015, net income for the period amounted to PhP1.61 billion, or an increase of 9% year-on-year. Revenues were down 2% as higher volume in food ingredients, oleochemicals, and aerosols was tempered by weak commodity prices.
Lower palm and coconut oil prices held back refined vegetable oils volume. This was more than offset by accelerating momentum in specialties, in particular volume and margin of oleochemical specialties and food ingredients. Aerosols again delivered good results, while specialty plastics modestly grew in the third quarter. In total, high margin specialties, which accounted for 61% of revenues, outgrew commodities.
With the improving mix and sustained margin gains across all segments, gross profit margin increased to 17.8% from 15.7% in 2014. The Company generated return on equity and return on invested capital of 17.9% and 17.4%, respectively. Overall, strong volumes in specialties, improved mix, and continued recovery of specialty plastics are expected to drive earnings growth in the remainder of the year.
The company’s cash flow continues to benefit from the weakness in commodity prices. From negative free cash of PhP157 million in the full year of 2014, the company generated positive free cash of PhP2.02 billion in the first nine months of 2015.
In addition to the increase in capital stock in June, long-term debt was introduced into the balance sheet in July, providing further financial latitude. The PhP1 billion bank loan was fixed at 4% for 5 years, proceeds of which were used to partially settle short term borrowings. As a result, net debt was further reduced to PhP2.90 billion from PhP4.21 billion at the end of 2014. Net gearing improved to 0.24x from 0.38x as of end of 2014.
Oleo-Fats focused on optimizing profitability across categories and delivering strong growth in the high margin, high value businesses. In response to weak market prices and surging internal requirements as feedstock for specialties, less volume of refined vegetable oils were sold in the third quarter. Meanwhile, the Company made continuous headway in the specialty ingredients and food safety space. Overall margins were up, resulting in 15% increase year-on-year in net income. Revenues were lower by 7% year-on-year.
Demand for more differentiated offerings to address consumer preference for snacking and dining is driving developments in retail and food service. During the period, R&D spend more than doubled and customer base grew by 7%, providing good levers of growth in an increasingly competitive marketplace for our customers.
Oleochemicals and other specialty chemicals
Specialty oleochemicals, which are now 19% of Chemrez revenues from 14% same period last year, is continually exploring new avenues for growth in line with trends in sustainability and health and wellness. In particular, it is leveraging innovative product development to capture more value in exports through niche coconut oil applications.
Low fuel prices, increasing vehicle ownership, and in general the growing economy continue to drive demand for transport and consequently, biodiesel. On the other hand, new developments coming out of the specialty chemicals pipeline are expected to spur growth amid this year’s subdued performance. Overall, Chemrez revenues were up 8% and net income was higher 38% year-on-year.
Year-to-date, volume is still down and revenues 11% lower than last year. However, sequential quarter-on-quarter growth in volume continues, with third quarter volume already higher year-on-year after several quarters of decline. Net income was down 6% from last year.
Now that overall logistics conditions have improved relative to last year, the company is optimistic it will resume to positive growth in the very near future as efforts continue to bring back businesses lost to port congestion. Longer term, focus will be on increasing collaboration with global players in various industries, which today include wire harness and biopolymers, to develop a stronger pipeline of higher margin, higher growth opportunities.
Aero-pack maintained good progress during the period, delivering various applications and customized products to meet the needs of local brands and manufacturers. Sales of industrial aerosols, which include maintenance chemicals such brake cleaners, grew strongest in the third quarter, demonstrating how robust domestic car sales is driving demand for automotive aftermarket products. Overall, revenues and net income were up 25% and 26%, respectively.
Going forward, the trend is still for consumers and households to focus discretionary spend on home care and personal care products. These include development in areas of skincare, both in aerosols and non-aerosol format.
Increase in dividend payout policy to 50%
No significant need for capital is expected in the mid-term. Currently, group-wide utilization rate is below 60% with the completion of three new facilities in the past five years. Management believes that the low funding needs for expansion and low leverage very well support the increase in dividend payout policy.
Since the IPO in 2012, the company has returned a total of PhP1.79 billion in cash to shareholders through dividends. In addition, a 100% stock dividend was paid out in September. Against the backdrop of improving returns, stronger balance sheet position, and good cash flow generation, the company wants to further boost shareholder value by raising the dividend payout policy from 25% to 50% of previous year’s recurring net income.