Olam posts $221.3m loss in Q4 after PCL write-down

Olam's earnings for the fourth quarter were pulled down greatly after writing down its investment in PCL and restructuring dairy operations in Uruguay.
Olam's earnings for the fourth quarter were pulled down greatly after writing down its investment in PCL and restructuring dairy operations in Uruguay.PHOTO: OLAM INTERNATIONAL

Olam International's fourth-quarter earnings slipped into the red after writing down its investment in Malaysian sweetener producer PureCircle (PCL) and restructuring its dairy business unit.

The commodity trader, which is backed by Singapore investment firm Temasek Holdings, posted a loss of $221.3 million for the three months to Dec 31, reversing a net profit of $118.7 million for the same period a year earlier.

Revenue rose 11.7 per cent to $5.45 billion, the company said yesterday.

Olam was hit by a large exceptional loss of $296.1 million for the quarter, owing primarily to a change in the presentation of a fair-value loss of its equity investment in PCL of $192.6 million.

The auditors had advised Olam last Thursday that given "the significant and prolonged decline in the share price of PCL", it would be prudent to present the $192.6 million charge, which had been previously recorded under the comprehensive income statement, in the profit-and-loss statement instead.

Olam said that given the timing of the auditors' advice, it could not provide prior notification of the impact of this change ahead of the company's release of its un-audited results yesterday.

  • AT A GLANCE

  • REVENUE: $5.45 billion (up 11.7%)

  • NET LOSS: $221.3 million (compared with net profit of $118.7 million)

  • DIVIDEND: 6 cents per share (down 20%)

"The company continues to believe in the long-term strategy, competitive position and growth prospects of PCL," it added.

Other exceptional losses included expenses of $76.9 million for its New Zealand Farming Systems Uruguay dairy restructuring and herd revaluation, and one-time transaction expenses of $34.1 million for its ADM Cocoa acquisition.

The losses were partly offset by a $33.6 million gain on the sale-and-leaseback of palm plantations in Gabon.

For full-year 2015, Olam suffered a loss of $64.3 million compared with a net profit of $591 million in the previous year, while revenue fell 3.6 per cent to $19.1 billion. Loss per share was 8.13 cents, compared with earnings per share of 4.48 cents previously, while net asset value per share stood at 181.14 cents as at Dec 31, up from 168.62 cents as at June 30, 2014.

OCBC Investment Research, which maintained a hold call on Olam, said the company will continue to "prune unprofitable businesses and... reduce operating costs".

"Olam saw continued underperformance from its dairy operations in Uruguay, but it has closed a significant number of dairy farms and reduced herd population there. Subject to dairy prices, Olam expects the business to turn profitable in 2017," OCBC analyst Carey Wong said.

Operational profit after taxes and minority interests and excluding exceptional items fell 16.2 per cent to $88.2 million for the fourth quarter owing to higher depreciation, amortisation and net finance costs, but the figure jumped 20.1 per cent to $346.2 million for 2015.

"We continue to deliver strong operational performance in 2015 despite significant volatility in global commodity and currency markets. Our reported performance was impacted by our decision to change the basis of presentation of our equity investment in PureCircle, although this had no impact on our total equity or cash flow position," Olam chief executive Sunny Verghese said.

Net gearing stood at 1.94 times as at Dec 31, compared with 1.85 times as at Dec 31, 2014. "The gearing level remains in line with our 2016 objective of at or below 2.0 times," he added.

A final dividend of 3.5 cents per share was recommended, bringing total dividend for the 18-month financial year ended Dec 31 to six cents per share, compared with a total payout of 7.5 cents for the year-ago period.

Shares of Olam fell 0.9 per cent, or 1.5 cents, to $1.595. 

A version of this article appeared in the print edition of The Straits Times on March 01, 2016, with the headline 'Olam posts $221.3m loss in Q4 after PCL write-down'. Print Edition | Subscribe