Olam's Q3 profit hit by finance costs, lower sales

Olam International's Storage and Distribution van (left) and warehouse (right).
Olam International's Storage and Distribution van (left) and warehouse (right). PHOTO: OLAM INTERNATIONAL

Commodity trader's profit falls 30% to $31m even as revenue rose 4% to $4.47b

Finance costs and lower sales in some segments sent third-quarter earnings plunging at Olam International, it reported yesterday.

The commodity trader, which is backed by Singapore investment firm Temasek Holdings, reported a net profit of $31 million for the three months to Sept 30, down from $44.3 million in the same period a year ago.

This was on the back of a net exceptional loss of $3.2 million - from prepayment charges incurred as a result of the early redemption of debt - as well as lower sales for food staples and packaged foods.

The group had logged a net exceptional gain of $12.1 million in the same quarter last year from the sale of its dairy processing plant in Cote d'Ivoire.

Olam's lower profit came as revenue rose 4 per cent to $4.47 billion, bolstered by "steady growth" across all segments except food staples and packaged foods amid a sluggish environment for commodities.

  • AT A GLANCE

  • NET PROFIT: $31 million (-30%)

    REVENUE: $4.47 billion (+4%)

Revenue for the food staples and packaged foods segment fell 3.6 per cent to $1.35 billion owing to lower traded volumes and prices, especially in grains, sugar and rice. Its Uruguayan dairy unit also continued to underperform.

Earnings per share was 1.08 cents, down from the 1.64 cents previously, while net asset value per share stood at 184.74 cents as at Sept 30, up on the 168.62 cents as at June 30 last year. The firm paid an interim dividend of 2.5 cents per share on Aug 31 for the period from July 1 last year to Dec 31 this year.

Chief executive Sunny Verghese told a briefing yesterday the group's dairy unit in Uruguay is undergoing restructuring, which will likely result in a one-time cost this quarter.

It is closing 17 of its 49 dairy farms there and reducing its herd from 80,000 to about 50,000.

Olam has been taking steps to optimise its balance sheet in recent quarters, including reducing its inventory levels and re-calibrating its portfolio.

Mr Anantharaman Shekhar, the executive director of finance and business development, noted that the group's "sustained focus on capital management" has helped it reduce gearing and borrowing costs.

Net gearing stood at 1.43 times as at Sept 30, an improvement over the 1.85 times as at the same time last year. "We remain on track to achieve our strategic plan objectives of profitable growth and free cash flow generation by 2016," he said.

Mr Verghese said the group will be "very disciplined" in undertaking growth opportunities.

He added that the long-term outlook for the agri-commodity sector remains attractive and is "confident" the company's diversified portfolio will allow it to navigate uncertainties in global markets.

The results were released before the markets opened. Olam shares closed seven cents, or 3.5 per cent, down at $1.915 yesterday.

A version of this article appeared in the print edition of The Straits Times on November 14, 2015, with the headline 'Olam's Q3 profit hit by finance costs, lower sales'. Print Edition | Subscribe