Olam's first-half profit rises 44% to $332.7 million

Agri and food giant Olam International saw a 44.4 per cent rise in net profit to $332.7 million for the first half of the year ended June 30, from $230.4 million a year ago.

This was due to a combination of a net exceptional gain of $130.6 million from the group's divestments of the remaining half stake in Far East Agri and the partial stake sale of ARISE P&L, but was offset partially by one-off exit and closure costs of other de-prioritised assets that were divested or shut down.

Although revenue for the period rose 7.1 per cent to $17.1 billion from $15.9 billion last year, earnings before interest and taxes fell by 18.8 per cent. This was due to lower contributions from the Olam Food Ingredients (OFI) segment because of reduced contribution from the almonds, hazelnuts and cocoa processing businesses - which were affected by adverse prices and margin pressures resulting from the Covid-19 pandemic.

The group attributed the revenue increase to volume growth as well as higher average selling prices.

This is the first time Olam is reporting results for its newly formed operating groups - OFI, Olam Global Agri (OGA) and Olam International Limited (OIL) - following its reorganisation, which was aimed at simplifying its businesses in order to sharpen its focus.

For the first half of the year, OFI and OGA saw their revenues rise 8.8 per cent and 8.4 per cent year on year respectively, while OIL - parent company of both OFI and OGA - saw revenue slip 14.6 per cent on the back of closure of the sugar, rubber and fertiliser trading desk, the fundamental fund and wood products business in Latin America. Olam said each of the new operating groups is engaged in developing a full potential strategic plan and a cost and capital transformation plan that will allow the group to "unlock and maximise long-term value".

The board of directors has declared a one-tier tax-exempt interim dividend of 3.5 cents, unchanged from the corresponding period a year ago. The dividend is slated to be paid out on Aug 28.

As at June 30, Olam had cash and cash equivalents of $5.76 billion. The group said its discipline in proactively controlling costs, conserving cash and managing its capital structure helped it generate free cash flow to equity of $826.9 million in the first half of the year.

Net gearing remained steady at 1.29 times despite higher net debt with an adjusted gearing of 0.34 times net of readily marketable inventory and secured receivables.

Olam said Covid-19 has "adversely impacted" some of its business segments, and expects its performance in H2 to "consequently recover and show better results".

Olam chief executive Sunny Verghese said: "While the year ahead will remain challenging and uncertain with a range of outcomes that could impact demand and supply conditions across geographies, businesses and financial markets, we remain confident in the strength of our business model to emerge stronger from this crisis."

THE BUSINESS TIMES

A version of this article appeared in the print edition of The Straits Times on August 14, 2020, with the headline 'Olam's first-half profit rises 44% to $332.7 million'. Print Edition | Subscribe