D&L Industries’ earnings up 31% on exports growth

D&L Industries, Inc. on Wednesday reported a net income of P2.6 billion last year, up 31% from a year earlier, driven by increased economic activity and growth in the food ingredient maker’s export business.

“Our business faced incredible challenges during the pandemic. Now emerging two years later on a better footing both operationally and financially, with our earnings already back to pre-COVID levels, we feel that the company has not only proven but also strengthened its resilience,” D&L President and Chief Executive Officer Alvin D. Lao said in a statement.

He added that while the company is cautiously optimistic about the pandemic’s tailend, “we remain focused on our core competencies, ready to ride another wave of volatility brought about by recent geopolitical uncertainties.”

In the fourth quarter, earnings fell 25% to P480 million from P637 million in 2020, as margins dropped due to the lag in pass-through prices.

In its disclosure, the company said the rapid increase in commodity prices during the quarter and the tailend effect of the surge of the Delta virus variant “tempered” D&L’s consecutive quarters of earnings growth.

“With a lower COVID alert level in place and continued decline in new cases in the country, the company sees a buildup in momentum and renewed business optimism for further recovery,” it added.

D&L reported that prices of some of its key raw materials, including coconut and palm oil, surged in the past couple of months.

Average year-to-date prices of coconut oil and palm oil were up 23%, coming from over 60% year-on-year increases for both commodities in 2021.

“While D&L is able to adjust its selling price regularly to reflect higher input prices, there is a time lag of 30-45 days before the company can fully pass on price changes. As such, in an environment of rapid price increases, temporary margin contraction is possible. However, management sees this as temporary and expects margins to recover once commodity prices start to stabilize,” it said.

Meanwhile, the volume of high-margin specialty products (HMSP) grew 13% in the fourth quarter due to the eased quarantine restrictions.

“Had it not been for the lower margins due to the sharp increase in commodity prices, higher HMSP volumes would have resulted in meaningful earnings growth in the fourth quarter. Looking ahead, while the soaring commodity prices may weigh on volume recovery, the company sees the continued reopening of the economy to help fuel demand and offset potential weakness,” D&L said.

Exports, which accounted for 33% of total revenues, jumped 62% to P10.2 billion in 2021 and were up 81% in the fourth quarter.

Of the exports, coconut-based products under food and oleochemicals were the main drivers behind the growth.

“Coconut oil continues to gain traction in the global market due to its perceived natural antiviral, antibacterial, and antifungal properties. In addition, coconut oil remains a valued, sustainable substitute for petroleum-based raw materials used in many applications such as personal hygiene and home cleaning products. Going forward, the company expects its foothold in coconut oil-based exports to strengthen, which should offset some of the weakness in the domestic market in the near term,” D&L said.

The holding company is currently expanding its Batangas facility, which is expected to begin commercial operations in January 2023.

To accommodate additions and upgrades to the original plan for the facility, D&L increased the budgeted capital expenditures (capex) to P9.1 billion from P8 billion. The company had spent around P6.2 billion for the project as of end-December.

In September, the company executed its maiden bond offering, raising P5 billion to help fund the remaining capex for the expansion.

The facility will cater to D&L’s growing export businesses in the food and oleochemicals segments, by allowing the company to manufacture downstream packaging,

“This means that D&L will have the ability to process the raw materials and package them closer to finished consumer-facing products. This will enable D&L to move a step closer to its customers by providing customized solutions and simplifying their supply chain, which is of high importance given ongoing logistical challenges,” the company said.

D&L said it is also ramping up its sustainability measures through research and development.

“In the global scene, D&L is seen as an advocate for sustainable products derived from sustainable materials such as coconut oil, given its extensive technical know-how and wide array of product offerings,” the company said.

Its Batangas plant will be designed with sustainable infrastructure and operations with sustainable products in mind.

The company offers various sustainable products such as plant-based replacements for dairy and animal-derived ingredients, biodiesel that is a more environment-friendly substitute for fossil fuels, coconut oil-based natural and organic raw materials for home and personal care products, organic fertilizers, and even sustainable packaging materials.

“As the world shifts toward a more sustainable consumption, D&L plans to continue to play on its strengths and develop more products designed to better lives while being kind to the planet. The company sees this trend as the next leg of growth and sees the next decade as transformational for the company,” the company said.

“Nonetheless, while 2022 won’t be without difficulties, we continue to pursue areas of opportunities that will bring the next leg of growth for the company. With coconut oil continuing to gain traction globally as a natural and sustainable substitute to many petroleum-based raw materials, we plan to further capitalize on this by entering more export markets and by using our research and development expertise to introduce more highly specialized, coconut-oil based products,” Mr. Lao said.

At the stock exchange, D&L shares went up by 0.77% or P0.06 to close at P7.85 apiece on Wednesday. — Luisa Maria Jacinta C. Jocson