Olam reports Q3 profit hike
16 Nov 2017 --- Olam's third-quarter net profit grows 17.5 percent to US$24.1m, according to financial results posted by the agri-business giant - despite facing tough trading conditions for coffee and headwinds and pressure on cocoa businesses.The supplier says it significantly improved financial and operating performance – Q3 2017: PATMI up 17.5 percent to US$24.1 million, while operational PATMI is up 17.1 percent to US$24.0 million on strong volume growth and improved operational performance across most segments.
Olam generated a free cash flow to the firm of US$1.11 billion in the first nine months of this year, compared with a negative US$150.5 million in the same period last year.
“These results show we are delivering consistently strong operating and financial performance, with our Q3 results building on the positive trend of our first half. Execution of our strategy has significantly improved earnings growth and generated strong free cash flow,” said Co-Founder & Group CEO Sunny Verghese.
“This performance is clear evidence that our strategy is working. We believe we have struck the right balance between driving for growth while managing risk and cash flow. We have focused on a number of key elements to achieve these results – selective growth in prioritized platforms, turnarounds in underperforming areas and nurturing gestating assets to reach full potential, bearing in mind our priorities to achieve improved returns and positive free cash flow. And importantly, we have achieved this while keeping sustainability at the core of everything we do.”
Going forward, Verghese notes an air of caution as several agricultural commodities at risk of market pressures and headwinds but remains upbeat for the future outlook of the company.
“While we are very encouraged by our good performance to date, we are cautious about near-term market uncertainties in some agri-commodities which may impact us. However, overall, we are confident of our ability to generate long-term value for our stakeholders.”
Executive Director and Group COO, A. Shekhar adds how broad-based performance contributed to the strong results led by Edible Nuts, Grains and Animal Feed, Dairy, Cotton, and Ag Logistics & Infrastructure.
“We have significantly improved overall free cash flow by growing operating cash flows, reducing Capex spending and undertaking other working capital optimisation initiatives,” he said.
“We were also aided to some extent by lower commodity prices.”
“On debt funding, we have further diversified our sources of financing through maiden issuances of Samurai loan and European syndication in Q3 2017. Our balance sheet has been further strengthened through the exercise of warrants by warrant holders, increasing our equity capital by US$321.8 million this year. The remaining warrants, which are in the money if exercised before the expiry date (January 29, 2018), will result in an additional equity infusion of US$164.9 million.”
Other financial highlights include EBITDA increasing 18.2 percent to US$243.0 million (Q3 2016: US$205.5 million) on growth in the Edible Nuts, Spices & Vegetable Ingredients, Food Staples & Packaged Foods and Industrial Raw Materials, Ag Logistics & Infrastructure segments.
Edible nuts, spices & vegetable ingredients
Revenue grew 19.4 percent to US$3.3 billion, mainly on higher volumes from spices and sesame and higher almond and cashew prices compared with 9M 2016.
EBITDA grew 38.9 percent to US$339.1 million as a stronger contribution from almond, cashew, peanuts and sesame offset lower contribution from tomato processing.
Confectionery & beverage ingredients
Revenue increased 12.4 percent to US$6.2 billion on higher volumes overall, offset by lower coffee and cocoa prices.
EBITDA declined 6.5 percent to US$248.8 million. Higher earnings from coffee were offset by lower contribution from cocoa, which continued to experience headwinds and margin pressures for both the cocoa bean and products trading business, even as its processing business performed well.
Food staples & packaged foods
Revenue increased 56.0 percent to US$6.4 billion mainly on higher trading volumes in grains and edible oils.
EBITDA grew 29.1 percent to US$291.2 million, driven by better results from wheat milling, dairy, sugar refining and early trading results from its new animal feed and protein businesses.
Industrial raw materials, ag logistics & infrastructure
Revenue was up 49.1 percent to US$3.2 billion on higher cotton volumes and prices.
EBITDA improved 18.9 percent to US$139.1 million with higher contribution from cotton and ag logistics and infrastructure, compensating for the underperformance in wood products.
Outlook
Olam says that while it expects macroeconomic uncertainties to continue through the year, the company believes its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets.
It will continue to execute on its strategic plan and pursue growth in its prioritized platforms, remaining “focused on turning around underperforming businesses, ensuring gestating businesses reach full potential and delivering positive free cash flow.”
