Profits Dip at Olam
14 Nov 2016 --- Olam International Ltd has reported its financial results for Q3 2016 and nine months to the end of September, with a 8.6 percent decrease in profit after tax to S$20.5 million (USD14.4 million).
The agribusiness is a major player in several commodities such as nuts, cocoa and coffee, having recently strengthened its position in coffee trading with the acquisition of East African independent specialists Schluter at an enterprise value of S$7.5 million (USD5.3million).
For Q3 2016, Olam reported an 8.6 decrease in PATMI year-on-year to S$20.5 million (USD14.4 million), on higher depreciation and amortization charges despite higher operating profit. Operational PATMI declined by S$5.2 million (USD3.6 million) or 20.2 percent to S$20.5 million (USD14.4 million).
Operating profits improved with earnings before Interest, Tax, Depreciation and Amortization (EBITDA) up by 7.7 percent on the back of strong performance from confectionery & beverage ingredients and food staples & packaged foods, which offset declines in other business segments.
Sales volumes increased 16.4 percent as all segments, except confectionery & beverages ingredients, showed growth. Revenues also increased by 6 percent as lower prices for some commodities offset the higher volumes.
For nine months of 2016, Olam reports a 61.2 per cent increase in PATMI to S$249.1 million (USD176 million) due to lower exceptional losses from buying back high price bonds. EBITDA grew 3.4 percent year-on-year to S$853.9 million, driven by growth in the confectionery & beverages ingredients and food staples & packaged foods businesses. However, Olam says that despite overall debt, net finance costs fell from S$327.6 million in 9M 2015 to S$291.6 million as a result of the initiative to optimize loans tenures and reduce borrowing costs.
All segments registered higher volumes leading to a sales volume increase of 15.8 percent and revenues grew 6.4 percent year-on-year as lower prices from some commodities offset the impact of higher volumes. Olam also recorded substantially higher net operating cash flow of S$812.6 million in 9M 2016, more than double the S$322.3 million from the previous corresponding period. But this was offset by the acquisition of wheat milling assets from BUA Group, Brooks Peanut Company and other continued investments.
In Q3 2016, Olam also completed the acquisition of palm and palm oil assets from SIAT Gabon for S$24.6 million through 60 percent owned joint venture Olam Palm Gabon, and the remaining 50 percent in Acacia Investments, palm refining assets in Mozambique for S$24 million. Post Q3 2016, the company also acquired 100 percent of East African coffee specialist Schluter S.A. for S$7.5 million and the Group’s joint venture with partner Mitsubishi Corporation, MC Agri Alliance, to import and distributed coffee, cocoa, sesame, edible nuts, spices, vegetable ingredients and tomato products for the Japanese market, began operations of October 1, 2016.
“Our differentiated strategy has enabled us to deliver improved performance year-to-date under challenging conditions. We continue to explore selective opportunities in our prioritized platforms, while remaining focused on ensuring the performance of our gestating assets,” says Olam’s co-founder and Group CEO, Sunny Verghese.
“We have taken several steps during the quarter to further strengthen our balance sheet, including a benchmark perpetual bond issuance, tap of our senior bonds and refinancing our syndicated loans,” adds Group COO and executive director, A. Shekhar.
Volumes increased by 5.8 percent in the edible nuts, spices and vegetable ingredients segment in 9M 2016, as higher peanut volumes, helped by the consolidation of Brooks, and higher cashew volumes compensated for reduced tomato paste volumes. Due to lower almond and tomato paste prices, revenues were 11.3 percent lower. EBITDA declined by 25.5 percent on lower contribution from the almond business and tomato processing operation, which offset gains in other businesses.
Meanwhile the confectionery & beverage segment recorded a 7.5 percent increase in volumes primarily on the consolidation of results for the acquired cocoa processing assets, but this was partially offset by lower supply chain volumes because of the impact that adverse weather conditions had on cocoa beans during the growing season in West Africa. Revenues grew 12 percent on the back of higher sales volumes and higher prices from cocoa and coffee.
In food staples & packaged foods, volumes were 17.9 percent higher due to higher wheat milling volumes after the acquisition of BUE Group’s wheat milling assets in Nigeria, as well as higher volumes from Grains’ origination and export operations and in rice trading. Revenues increased 11.9 percent even as prices for rice, pal, and dairy declined during the period. EBITDA grew 37.6 percent due to improved performance across most platforms, except packaged foods where performance was affected by ongoing currency volatility and disruption of its dairy and beverage juice production in Nigeria following a plat fire earlier this year.
Olam says its outlook and prospects look good because long-term trends in the agri-commodity sector remain “attractive” and the Group is well positioned to benefit and because of its diverse and well-balanced portfolio with leading positions in many segments, Olam can be resilient to current and continue uncertainties in global markets.
