Olam Group reports strong revenue growth in food sectors amid geopolitical risks and uncertainty
27 Feb 2023 --- Olam Group reported a strong year in 2022 as it sustained revenue and EBIT growth despite heightened geopolitical risks and significant macroeconomic volatility. Revenue increased 16.8% year-on-year (YoY) to S$54.9 billion (US$40.6 billion), primarily due to higher prices across many products and commodities.
The company results showed “strong revenue growth of 15.3%” led by pricing increases across both Olam Agri and olam food ingredients (ofi) segments.
“We delivered an operational profit from business operations excluding any gains or losses from divestments, revaluations and impairments (PATMI) of S$781.5 million (US$579 million) against a strong prior year and saw revenue and EBIT growth in 2022, despite the challenging environment that we are operating in,” says Olam Group co-founder and CEO, Sunny Verghese.
“Our discipline in executing our strategy has enabled us to ride industry tailwinds to deliver strong operating performance, with Olam Agri in particular, delivering another strong year.”
Revenue increased 9.5% year-on-year (YoY), and EBIT grew 2.2% to S$798.2 million (US$591 million).
Meanwhile, PATMI declined 24.5% to S$200.0 million (US$149.18 million) as net finance costs doubled. PATMI declined 8.3% YoY to S$629.1 million (US$466.1 million) against a strong prior year, as EBIT growth was offset by significantly higher net finance costs and taxes.
Ofi’s revenue grew 15.3% to S$16.4 billion (US$12.1 billion), led by pricing growth across both segments.
EBIT declined 9.0% to S$746.5 million (US$553.1 million) compared to a prior solid period. It was adversely impacted by external events in 2022, particularly the sudden and significant spike in energy costs in H1 2022.
“Overall market conditions in 2022 were challenging,” says CEO A Shekhar. “Starting from a strong performance in 2021, the war in Ukraine led to significant macroeconomic uncertainty in many markets, elevated inflation levels and difficulties across supply chains.”
Energy costs, in particular, reached record highs, adversely impacting our profitability on pre-sold customer contracts and contributing to the lower EBIT performance in 2022.
Despite this uncertain macroeconomic backdrop, Shekhar maintains that the company has made good operational and strategic progress.
“We continue to build momentum throughout the organization and we have made significant progress in refocusing our business around the needs of our customers, including a more streamlined and responsive approach to managing our customer relationships across business segments.”
Olam Agri results
Olam Agri delivered a “strong 2022 performance against a record 2021 despite geopolitical risks and macroeconomic volatility.”
Revenue grew 18% to S$36.9 billion (US$27.3 billion), driven mainly by higher commodity prices across the grains, oilseeds complex, and edible oils.
EBIT grew 13.9% to S$857.7 million (US$635.5 million) on higher contributions from the Processing & Value-added segment. A reduction in contribution from the Fibre, Agri-industrials & Ag Services segments partly offset this. Origination & Merchandising segment remained steady and performed as well in 2021, although disruptions in grains and oilseeds flows from Russia and Ukraine.
“Global food security also remains a number one concern, with many countries experiencing significant food price inflation. Through our global network and building on our recent partnership with The Saudi Agricultural and Livestock Company (SALIC), we can extract partnership synergies crucial to enhancing food security and capturing growth in new markets,” explains Verghese.
Outlook and prospects
For 2023, the company expects commodity prices and supply chain disruptions to ease from the highs of 2021/2022, although geopolitical and macroeconomic uncertainties are likely to persist.
Ofi entered 2023 with good momentum. Its actions to mitigate the external shocks of 2022, such as passing through inflationary costs, are rolling through, also supported by the easing of recent supply chain disruptions.
Building on solid growth and outperformance in 2022, Olam Agri expects to capture the significant growth opportunity in the market to strengthen operating performance for 2023 further while continuing to navigate geopolitical and macroeconomic risks successfully.
Barring any unforeseen circumstances or unfavorable geopolitical, macroeconomic and roll-back on the reopening of borders by significant economies, the group is “cautiously optimistic about its prospects for 2023.”
“In the year ahead, we expect both Olam Agri and ofi to continue their growth momentum, capitalizing on industry trends, the reopening of economies and the easing of supply chain disruptions,” concludes Verghese.
Edited by Elizabeth Green
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