Latest / Investor Exchange / Operations Win Big — But Wilmar International Still Took A Major Loss In Q3 2025

Transcript

Operations Win Big — But Wilmar International Still Took A Major Loss In Q3 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the Deep Dive. Today, we're tackling a really interesting set of
• 0:12
  numbers from Wilmar International Limited.
• 0:14
  Yeah, the agribusiness giant. Their third quarter results for 2025.
• 0:19
  Well, they definitely make you look twice. Exactly. There's this huge,
• 0:23
  almost jarring contradiction right on the surface.
• 0:25
  You've got massive revenues, but then the profit line just goes wild.
• 0:30
  It really does. Overall, revenue was up, what, 7.4 percent, reaching over U.S.
• 0:34
  19 billion dollars for the quarter.
• 0:36
  That looks pretty strong operationally. Right. 19.06 billion, to be precise.
• 0:41
  But then you hit the net profit and it swung from a decent profit last year
• 0:45
  to, well, a very significant loss this time around.
• 0:48
  So our mission today really is to cut through that headline shock.
• 0:52
  We need to look under the hood, use the financial tables, the executive summary.
• 0:56
  And figure out what's really going on with the core business.
• 0:58
  Is Wilmar fundamentally healthy, operationally strong, or is this loss a sign of deeper trouble?
• 1:04
  And the key, as you hinted, lies in splitting out that reported net profit from
• 1:08
  what they call core net profit.
• 1:10
  It's crucial in cases like this. You absolutely have to separate the one-offs,
• 1:15
  the extraordinary items, from the actual day-to-day running of the business.
• 1:18
  Because that core number, that tells you about the underlying sustainable performance.
• 1:23
  Is the engine itself running well, regardless of, say, unexpected bumps in the road?
• 1:27
  And when you isolate that core net profit for Wilmar in Q3, Wow.
• 1:32
  It paints a completely different picture. A much, much better picture.
• 1:35
  We're talking a core net profit of U.S.
• 1:38
  $357.2 million. Which is a huge improvement rate compared to the same quarter last year.
• 1:44
  Massive. It's up 71.6% from the U.S.
• 1:47
  $208.1 million. they posted in Q3 2024, 71.6%. That's seriously strong core
• 1:54
  performance. And was this just a one-quarter blip?
• 1:57
  Or does it reflect a longer trend? Well, if you look at the first nine months
• 1:59
  of 2025, the trend holds.
• 2:01
  Nine-month core net profit was also up 15.5% year-on-year.
• 2:05
  Okay, so nearly a billion dollars, 940.9 million in core profit over nine months.
• 2:10
  So operationally, things seem pretty solid. Very solid.
• 2:14
  The report says this strength came from basically better results across all
• 2:18
  their main business segments.
• 2:19
  Plus, they got higher contributions from their joint ventures and associates, too.
• 2:23
  So it wasn't just one part of the business carrying the load.
• 2:26
  No, it seems pretty broad-based.
• 2:28
  If we dig into the segments, food products, for example, performance there was
• 2:32
  helped by better results in China, specifically oil, flour, and rice.
• 2:37
  And those are huge markets, obviously. Volume must be key there.
• 2:40
  It was. Overall, food product sales volume was up 6.5% in the quarter,
• 2:45
  hitting 9.3 million metric tons.
• 2:48
  Steady growth. That kind of volume in staple foods, especially in a place like
• 2:52
  China, shows incredible reach and resilience. Absolutely.
• 2:55
  And that operational strength is reflected elsewhere, too. Oilseeds and grains,
• 2:59
  their volume grew even faster, 11.6% in Q3.
• 3:02
  Okay, so food products are up, oilseeds and grains are up. What about feed and industrial products?
• 3:07
  Also a positive story, driven partly by their tropical oils business,
• 3:11
  higher sales volume there. But the really interesting part was the soybean business.
• 3:15
  Ah, soybeans. What happened there? Well, it was kind of a perfect storm in a good way for Wilmar.
• 3:20
  You had abundant harvests coming out of South America, meaning plenty of supply. Right.
• 3:25
  Lower input costs, potentially. Exactly. And at the same time,
• 3:28
  there was higher demand from the livestock industry for feed.
• 3:32
  So Wilmar capitalized higher crushing margins and higher volume for soybeans in Q3.
• 3:37
  Nice example of them leveraging their scale and integration across the supply chain. Definitely.
• 3:42
  And we should also mention the palm segment, their plantations. Yeah.
• 3:46
  That also contributed positively, helped by steady palm oil prices.
• 3:51
  So generally good operational news. Generally, but you mentioned volumes was
• 3:55
  everything up. Ah, good point.
• 3:57
  Not quite everything. Sugar was the outlier. Sugar volume actually dropped quite
• 4:00
  a bit in Q3, down 18.2%. OK, so a bit of softness here.
• 4:04
  But overall, the core operational story looks, well, pretty robust.
• 4:08
  Strong volumes in key areas, good margins in others. Exactly.
• 4:11
  The engine, as we said, seems to be running very smoothly, generating that impressive
• 4:15
  71.6% jump in core profit. Which brings us back to the big question.
• 4:20
  If the core business was doing so well, what on earth caused that massive headline
• 4:25
  loss? Yeah, the elephant in the room.
• 4:27
  Despite that strong core performance, the final number was a net loss of U.S.
• 4:32
  $347.7 million for the quarter. Compared to a profit of over U.S.
• 4:37
  $250 million last year. A huge swing.
• 4:40
  A swing of what? roughly U.S. $600 million from profit to loss.
• 4:44
  That just doesn't happen organically from operations when the Corps is improving
• 4:48
  that much. So it has to be a specific, large, non-operational item.
• 4:52
  And it was. The report is very clear about it. The loss was caused by a single,
• 4:56
  very large payment. The one related to the Indonesia Supreme Court decision.
• 4:59
  That's the one. A compensation payment mandated by the court.
• 5:02
  It hit the books in this quarter. And the size of it.
• 5:05
  Staggering. It was IDR $11.88 trillion.
• 5:08
  Wow. Which translates to? Approximately U.S. $712.3 million.
• 5:13
  $712 million. Okay. So that one payment completely swamps the U.S.
• 5:17
  $357 million core profit they generated.
• 5:20
  Exactly. It wipes out the entire core profit for the quarter and then digs a
• 5:25
  nearly $350 million hole on top of that. Hence the net loss.
• 5:29
  And just for context, this payment relates to something that happened a while ago, right?
• 5:34
  Yeah. The report links it to actions taken back in fiscal year 2021.
• 5:38
  It was during a cooking oil shortage in Indonesia. So it's like a charge from
• 5:42
  the past catching up with their current financials.
• 5:45
  A very expensive catch up. And you can see the ripple effect immediately,
• 5:48
  like on EBITDA. Oh, absolutely.
• 5:50
  EBITDA usually gives a sense of operational cash flow potential,
• 5:53
  but because this massive charge had to be factored in, EBITDA actually fell
• 5:56
  53.4% in Q3. Shows how one huge non-operational item can really distort those
• 6:03
  metrics if you don't look deeper.
• 6:05
  Precisely. Okay, so the company just took a massive financial hit,
• 6:08
  over $700 million out the door. We need to check its financial health.
• 6:12
  How did the cash flow and balance sheet hold up under that pressure?
• 6:15
  That's the next crucial question. And actually, the answer is surprisingly positive. Really?
• 6:20
  Even with that payout? Yeah. Their cash generation from operations remained really strong.
• 6:25
  For the first nine months of 2025, cash flow from operations was U.S. $3.94 billion.
• 6:32
  That's up from last year. Significantly up. It's a 29.3% increase compared to
• 6:37
  the same nine months in 2024.
• 6:39
  So the underlying business is still throwing off a lot of cash.
• 6:41
  That provides a pretty solid cushion. And what about debt? Were they able to
• 6:45
  manage their debt levels?
• 6:47
  They were. They actually managed to reduce their net debt. It came down to U.S.
• 6:51
  $16.48 billion by the end of September.
• 6:55
  Down from? Down from U.S. $18.64 billion at the end of 2024.
• 6:59
  So that's an 11.6% reduction in net debt in just nine months.
• 7:04
  How did they manage that, especially with the big payment? Was it just a strong
• 7:07
  operating cash flow? That was part of it, but there was another factor helping
• 7:11
  them, commodity prices.
• 7:12
  Ah, right. You mentioned soybeans earlier. Exactly.
• 7:15
  The report notes that the continued softening of prices for key commodities,
• 7:19
  like soybeans and also sugar, actually helped them.
• 7:21
  How does that work? Lower prices mean less cash tied up.
• 7:24
  Precisely. When the raw materials you buy are cheaper, you need less money.
• 7:29
  Less working capital tie up in inventory and receivables, just to keep the business
• 7:33
  running at the same volume.
• 7:34
  So that freed up cash could then be used for other things.
• 7:38
  Like paying down debt. You got it. Less cash needed for working capital means
• 7:42
  more cash available for debt reduction. It's smart balance sheet management.
• 7:47
  And that debt reduction would improve their gearing ratios, I assume. It did.
• 7:51
  The net gearing ratio improved to 0.82 times, down from 0.94 times at the end of last year.
• 7:57
  Lower gearing generally means lower financial risk. Okay, so strong cash flow,
• 8:02
  debt coming down, gearing improving.
• 8:04
  What about immediate liquidity? Any concerns after writing that huge check? Doesn't seem like it.
• 8:09
  They highlighted having substantial unused banking facilities available almost U.S. $37 billion.
• 8:15
  $36.4 billion, yeah. Yeah. That's a massive safety net.
• 8:19
  Huge. So liquidity doesn't appear to be an issue at all. The financial structure
• 8:22
  seems remarkably resilient, actually. So summing that part up.
• 8:27
  Core operations strong, generating good cash. Balance sheet managed well,
• 8:32
  debt reduced, despite the huge one-off hit.
• 8:36
  Financial health seems okay. That's a fair assessment, yeah.
• 8:39
  The underlying financial structure looks sound.
• 8:41
  So what's the outlook then? What does management say about the rest of the year?
• 8:45
  Well, they acknowledged the situation quite directly.
• 8:48
  They basically said, look, our operating results improved, which is good.
• 8:52
  But yeah, the overall results were, and I quote, unfortunately impacted by the
• 8:57
  compensation imposed on our Indonesia operations.
• 9:00
  They explicitly separate the operational improvement from the one-off hit.
• 9:04
  OK, so they see the same distinction we've been talking about and looking forward.
• 9:07
  They expect the business to remain resilient for the rest of the year.
• 9:11
  Their overall forecast is one of cautious optimism.
• 9:14
  They expect performance to be satisfactory. Satisfactory, okay.
• 9:17
  But is there a catch? A caveat?
• 9:20
  There is. And it's a really important one, especially given why they had that
• 9:24
  massive charge this quarter. Let me guess.
• 9:26
  Something about government policies. Exactly. They state this outlook holds
• 9:30
  true, barring any adverse change
• 9:33
  in international government policies that could impact our operations.
• 9:36
  Wow. So after taking a $712 million hit from one specific government-related
• 9:43
  ruling, they're explicitly flagging policy risk as the key uncertainty going forward.
• 9:48
  It makes perfect sense, doesn't it? That single sentence really ties everything together.
• 9:52
  The business is strong, the financials are managed well, but the biggest external
• 9:56
  threat isn't necessarily commodity prices or competition.
• 10:00
  It's regulatory and policy changes.
• 10:02
  That Indonesian situation proved just how impactful that can be. Absolutely.
• 10:06
  A multi-hundred million dollar impact, completely unrelated to their day-to-day
• 10:10
  operational efficiency.
• 10:11
  So the big takeaway for anyone looking at Wilmore right now is crystal clear.
• 10:15
  You have to look past that headline, Q3 loss. It doesn't reflect the core business health.
• 10:20
  Not at all. What you actually see is robust core growth.
• 10:23
  That 71.6% jump in core net profit is real and effective financial management,
• 10:28
  like the debt reduction.
• 10:30
  The loss was painful, sure, but it was specific, isolated, and backward looking.
• 10:35
  A regulatory hangover from 2021, essentially.
• 10:37
  Pretty much. It highlights the crucial difference between a business that's
• 10:42
  running well and a balance sheet that's temporarily messy due to a big, non-recurring charge.
• 10:47
  Wilmar absorbed a massive hit, but the underlying foundations seem solid.
• 10:52
  Which leaves us with a really interesting thought for you, the listener, to mull over.
• 10:56
  Management specifically warned about future adverse changes in international government policies.
• 11:02
  Yeah. We just saw one country's regulatory decision wipe out a whole quarter's profit and more.
• 11:08
  So think about this. If a company can be operating incredibly efficiently,
• 11:13
  like Walmart seems to be, but still have its performance completely derailed
• 11:16
  by a single policy decision.
• 11:18
  How does a global giant like this even begin to navigate the future?
• 11:23
  Think about potential risks from climate policies or trade disputes or changing
• 11:28
  food security rules in different countries.
• 11:30
  Especially when those policy risks, as we just saw, can potentially outweigh
• 11:34
  even stellar operational performance.
• 11:36
  It's a huge strategic challenge. How do you insulate yourself from that kind
• 11:39
  of political or regulatory lightning strike when your operations span the globe?
• 11:44
  It really underscores that tension, doesn't it, between market efficiency,
• 11:48
  which they seem to have mastered, and the sheer power of the regulatory environment,
• 11:53
  something to keep a very close eye on. Definitely.
• 11:55
  A fascinating case study in separating the signal from the noise.
• 11:59
  Thanks for joining us for the Deep Dive.