Singapore / SG. (oi) Olam International Limited wishes to provide the following update and profit guidance for the Group’s unaudited consolidated financial results for the second half ending 31 December 2020 (H2-2020) and the full year ending 31 December 2020 (FY-2020).
Following a periodic review of the carrying values of certain assets of the Group, the Group will record a one-off, non-cash and non-recurring impairment arising from a reduction in the recoverable value of the Company’s investment in Olam Palm Gabon (OPG) amounting to approximately USD 350 million in its financial statements for H2-2020 and FY-2020. This impairment was determined by the investments/assets’ recoverable value being the higher of the value in use and fair value less costs of disposal. In calculating the recoverable value of OPG, the valuation model considered certain assumptions including revenues, earnings before interest, tax, depreciation and amortisation (Ebitda), long term crude palm oil price, yields, on-going plantation costs, discount rate and fair value of recent market transactions.
Gabon has been experiencing moisture deficit in the recent past due to both lower rainfall as well as unfavourable rainfall distribution with prolonged dry spells during the June to September period. In order to mitigate this moisture deficit risk, the Company had decided to invest in a large drip irrigation project in 2019. However, due to the impact of Covid-19, the implementation of the drip irrigation project has been delayed by 12 to 18 months with a potential adverse impact on yields and returns.
The revised cost and capital structure of OPG following this impairment will provide the project a better cost base going forward as the Group continues to operate OPG as a positive example of environmentally and socially responsible palm production, including being fully RSPO certified.
Arising from this one-off, non-recurring and non-cash impairment on OPG, the Group will report a loss in H2-2020. Notwithstanding the impact of this impairment, the Company expects its FY-2020 net profit to remain positive, underpinned by strong growth in operating performance across the rest of the portfolio.
The Group is in the process of finalising its unaudited consolidated financial results for H2-2020 and FY-2020 which will take into account the impairment assessment mentioned above, while it continues to review and assess the carrying value of its assets.
The H2-2020 and FY-2020 unaudited financial statements of the Company and its subsidiaries will be announced on 26 February 2021. In the meantime, shareholders of the Company should keep this disclosure in mind when dealing in the shares or other securities of the Company.