Olam Q4 profits spike, boosted by gains in nuts, spices and vegetables

The Singapore-based commodity trader closed the year with strong results, generating record cash flows and strengthening its balance sheets.

And Olam says its diversified and “well-balanced” portfolio will help navigate the global challenges expected throughout the year, such as volatile markets and commodity prices.

“We successfully delivered on our key priorities for 2017, as part of our 2016-2018 Strategic Plan, closing the year with a strong set of results. Our earnings for the year grew significantly and our returns also improved. We generated record cash flows and further strengthened our balance sheet by reducing our gearing,” says Co-Founder & Group CEO Sunny Verghese.

“These results were achieved on a combination of pursuing growth in prioritized platforms, working to turn around underperforming businesses and nurturing gestating assets.”

“As such, I am pleased to share that the Board of Directors has recommended a final dividend of 4.0 cents per share adding to the interim dividend declared in Q2 2017, for a total dividend of 7.5 cents per share in 2017.”

“While we may not be immune to near-term uncertainties for some agri-commodities, we believe we can continue to generate long-term, sustainable value for our stakeholders. This will involve not only executing on our Strategic Plan but crucially pursuing value in an environmentally and socially responsible way.”

Financial results – Q4 2017
PATMI (Profit After Tax and Minority Interest) increased 159.3 percent year-on-year to US$265.1 million (Q4 2016: US$102.2 million) on one-off gains from strategic divestments of the sugar refining business in Indonesia and edible nuts farmland assets in the US, lower depreciation and amortization, and net finance charges.

Operational PATMI, which excludes exceptional items, grew 7.2 percent year-on-year to US$109.7 million (Q4 2016: S$102.3 million).

 
EBITDA was down by 10.4 percent at US$312.8 million (Q4 2016: S$349.0 million) as improved contribution from edible nuts, spices & vegetable ingredients, industrial raw materials, ag logistics & infrastructure and commodity financial services were offset by weaker contribution from the confectionery & beverage ingredients and food staples & packaged foods segments.

PATMI increased 65.3 percent year-on-year to US$580.7 million (2016: S$351.3 million) on one-off gains from divestments, improved operational performance and lower taxes, offset by higher depreciation and amortization expenses and finance costs.

Operational PATMI grew 18.6 percent to US$431.5 million (2016: S$363.8 million). EBITDA improved by 10.4 percent to US$1.3 billion (2016: S$1.2 billion) with growth across most segments.

Generated record positive Free Cash Flow to Firm (FCFF) of US$1.5 billion for 2017 (2016: -S$418.1 million) and Free Cash Flow to Equity of US$1.0 billion (2016: -S$765.8 million) on increased operating cash flows, a significant reduction in working capital and gross capital expenditure, and divestments.

Net gearing as at December 31, 2017, was lower at 1.46 times compared to 1.99 times as at December 31, 2016, due to a lower net debt arising from the reduction in working capital, lower gross capital expenditure, divestments and the conversion of warrants.

Edible Nuts, Spices & Vegetable Ingredients
Revenue grew 12.8 percent to US$4.5 billion, mainly on higher volumes in Edible Nuts and spices along with higher almond and cashew prices compared with 2016. EBITDA grew 32.1 percent to US$438.4 million on a stronger contribution from the Edible Nuts platform.

Confectionery & Beverage Ingredients
Revenue increased 5.5 percent to US$8.1 billion on higher volumes, offset by lower coffee and cocoa prices.

EBITDA declined 19.5 percent to US$327.7 million due to significantly lower contribution from coffee, which was adversely impacted by tougher market conditions and short crops in the second half of 2017.

Food Staples & Packaged Foods
Revenue increased 59.8 percent to US$9.8 billion mainly on higher trading volumes in Grains, Edible Oils, Rice and Dairy.

EBITDA grew 8.9 percent to US$359.7 million, driven by better results from grains milling, animal feed, Rice and Dairy, which offset lower contribution from Edible Oils, Sugar and Packaged Foods.

Commodity Financial Services
The segment reported an EBITDA of US$4.8 million in 2017 compared to a loss of US$1.6 million in 2016. This came largely from the funds business and Trade & Structured Finance, which generates incremental yield by utilizing Olam’s underlying agri-business trade flows.

Executive Director and Group COO, A. Shekhar said: “Most of our business segments delivered strong performance during the year, with edible nuts, cotton, ag logistics and infrastructure being stand-out performers. This, together with our focus on divesting non-core assets, lowering capital expenditures and optimizing our working capital enabled us to deliver strong cash flows.”

“Extracting cost and capital efficiencies will be a continuing focus, while we pursue profitable growth.

“We further diversified our funding sources while bringing down our net debt. As a result of the recent warrant conversion, we boosted our equity position, giving us additional headroom for growth.”

Outlook
While expecting macro-economic uncertainties to continue through the year, Olam believes its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets.

Olam will continue to execute on its Strategic Plan and pursue growth in its prioritized platforms while putting sustainability at the heart of its business. It remains focused on turning around underperforming businesses, ensuring gestating businesses reach full potential and delivering positive free cash flow.