Olam H2 profit falls 83.4%, proposes lower dividend of 3 cents per share

SINGAPORE – Agribusiness giant Olam Group on Feb 28 reported a net profit of $38.4 million for the second half ended Dec 31, down 83.4 per cent from $230.8 million in the previous corresponding period.

This translated to earnings per share of 0.58 cent for the half-year, down from 5.67 cents the previous year.

The group noted that earnings declined as earnings before interest and tax (Ebit) growth was offset by “a significant increase in net finance costs and higher net exceptional losses”.

These losses were mainly from the temporary cessation of operations at its food ingredients unit ofi’s onion and parsley processing plant, as well as the lease surrender and exit of two non-strategic almond orchards in the US.

Excluding these exceptional items, underlying profit fell 47.9 per cent on the year to $142.8 million.

Revenue for the period, however, rose 24 per cent to $29.2 billion from $23.6 billion.

Sales volume for the second half grew 11.2 per cent and Ebit was up 10 per cent at $1 billion, led by strong growth from the group’s ofi and Olam Agri units, which offset higher losses from the remaining Olam group.

Olam’s board proposed a final dividend of three cents per share, down from four cents per share the prior year.

This takes the full-year dividend to six cents per share, down from seven cents per share the year before. The dividend will be paid on May 14, following the record date of May 6.

For the full year, net profit declined 69 per cent to $86.4 million from $278.7 million. This was because Ebit growth was offset by the significant increase of $445.7 million in net finance costs, which was driven by elevated net debt levels from price-led working capital increases.

Revenue, however, climbed 16.3 per cent to $56.2 billion from $48.3 billion, due to high revenue growth from ofi, on the back of input price increases.

On Feb 24, Olam said it had entered into a conditional sales and purchase agreement with Saudi Agricultural and Livestock Investment Company (Salic), to dispose of all its remaining shareholdings in Olam Agri in two tranches.

The first tranche involves 44.58 per cent of the stake, which Salic will acquire for about US$1.8 billion (S$2.43 billion). This implies an equity valuation of US$4 billion for the whole of Olam Agri.

Following that, Salic’s stake in Olam Agri will be raised to a controlling 80.01 per cent, from the current 35.43 per cent.

Within three years of the completion of the first tranche, the group will sell the remaining 19.99 per cent stake in Olam Agri via a call or put option.

Including the initial sale of a 35.43 per cent stake in Olam Agri in 2022, Olam would have raised total gross proceeds of US$3.9 billion and accreted US$2.7 billion to its equity reserves, from the 100 per cent divestment of Olam Agri.

Olam’s co-founder and group chief executive Sunny Verghese said: “We will now focus on supporting ofi in its drive towards growing its higher-margin and higher value-added ingredients and solutions business, even as we seek strategic options to unlock value for the remaining Olam group businesses and ofi, including the pursuit of an ofi IPO.”

In particular, Olam said the remaining businesses under the group “will focus on narrowing their losses”, while strategic options for these businesses to unlock and realise value for shareholders are being reviewed.

Shares of Olam closed down 3.9 per cent, or four cents, to $1 on Feb 28, after its earnings announcement.

THE BUSINESS TIMES