Olam International: Profit up 17% in 9M-FY2013

Singapore / SG. (oi) Olam International Limited, a leading global, integrated supply chain manager and processor of agricultural products and food ingredients, reported a 17,0 percent growth in Profit After Tax and Minority Interest (PATMI) of 305,8 million SGD for the first nine months of FY2013 compared to 261,4 million SGD in the first nine months of FY2012.

Excluding exceptional items, PATMI increased by 15,0 percent to 300,7 million SGD in 9M-FY2013. Sales Revenue increased by 19,7 percent to 14,31 billion SGD as Sales Volume grew 61,5 percent to 11,7 million metric tonnes. Overall NC grew 22,9 percent to 1’157,1 million SGD.

The Food category, which accounted for 89,0 percent of total volumes, 77,7 percent of total revenue and 88,8 percent of total NC, saw Sales Volume increase by 70,6 percent and NC by 22,0 percent compared to 9M-FY2012. Sales Volume for the Non-food category improved by 12,5 percent and NC increased by 30,0 percent as the Industrial Raw Materials segment reported a 42,0 percent growth in NC which was partially offset by the decline in NC from the Commodity Financial Services segment.

Olam´s Group MD and CEO, Sunny Verghese said: «The overall results continued to demonstrate the strength and resilience of the Olam business model. We are confident that the well differentiated and defensible competitive position that we have built across multiple platforms will continue to deliver profitable growth. Our focus on portfolio optimisation and positive cash flow achieved during the quarter were consistent with our recently updated strategy of pursuing ongoing profitable growth with an increased emphasis on productivity improvements and accelerated cash generation».

In Q3-FY2013 PATMI grew by ten percent over the same quarter last year to 108,5 million SGD. PATMI before exceptional items grew 12,7 percent to 115,3 million SGD. Sales Revenue grew to 4,72 billion SGD, an increase of 11,5 percent compared with Q3-FY2012 off the back of a 44 percent increase in Sales Volume to 3,9 million metric tonnes. The quarter included the opening of a 60 million AUD almond hulling and processing facility in Australia and announcement of the divestment of a non-core basmati rice milling facility in India.

The Q3-FY2013 results included a net exceptional loss of 13,0 million SGD mainly from the recognition of costs incurred on the termination of the proposed sugar refinery projects in Nigeria following regulatory changes and in Brazil as a result of closing conditions not being met, as previously announced. This was offset by gains on the buyback of bonds issued by NZFSU.

Segmental Review

Olam´s Executive Director of Finance and Business Development, Shekhar Anantharaman said: «Segment performance overall met our expectations. The Food Staples + Packaged Goods and Industrial Raw Materials segments both continued to perform strongly this quarter as they have over the Financial Year to date. A positive performance in Edible Nuts, Spices + Beans was diluted by lower capacity utilisation and continuing margin pressures in our industrial tomato paste business as we work to reduce the impact of high carry-over inventory from the previous year. We continue to closely monitor the impact of coffee rust disease on our coffee origination and shipment volumes from Central and South America», he said.

The Edible Nuts, Spices + Beans segment grew Sales Volume by 4,8 percent and NC by 2,2 percent during 9M-FY2013. The edible nuts business platform continued to register growth in volume and NC during this period. The onion, spices and garlic dehydrates business performed on plan. However, the industrial tomato paste business faced margin pressures in Q3-FY2013 on account of lower capacity utilisation due to higher carry over inventory from the previous year.

The Confectionery + Beverage Ingredients segment registered an NC decline of 2,6 percent and a volume decline of 6,0 percent in 9M-FY2013 due to an epidemic of La Roya (coffee rust disease) affecting the coffee industry across Central and South America. This impacted Olam´s coffee origination and shipment volumes and margins. The continuation of export tax on cocoa beans in Indonesia also adversely impacted cocoa volumes and margins during the period.

The Food Staples + Packaged Foods segment´s Sales Volume and NC rose 114,4 percent and 61,1 percent respectively in 9M-FY2013. The Grains business continued to drive strong volume growth from higher origination and milling volumes. The Rice and Packaged Food businesses also contributed to higher NC/tonne during the period. The Dairy and Sugar businesses were behind plan and are undergoing some targeted restructuring.

The Industrial Raw Materials (IRM) segment recorded a Sales Volume growth of 12,5 percent and a growth of 42,0 percent and 26,2 percent in NC and NC per tonne respectively in 9M-FY2013. The Cotton business continued to register volume growth at stable margins during the period. The Wool and Rubber businesses were on track while Wood Products remained flat. The SEZ business had a lower contribution in 9M FY 2013 compared to the prior corresponding period.

The Commodity Financial Services (CFS) segment reported a loss at NC level of 10,7 million SGD in 9M-FY2013 compared to a gain of 0,8 million SGD in 9M-FY2012. Low historical volatilities across the agri-commodities complex led to reduced market-making volumes which adversely impacted performance.

Outlook and Prospects

The Company operates in the attractive agri-sector with strong growth prospects and a leadership position in many of its segments. Olam is well positioned to capitalise on the major secular trends that favour the continuing growth and upside possibilities of the industry given its uniquely diversified portfolio.

The strategy announced on April 25, 2013 is being implemented and is expected to generate shareholder value through continued profitable growth, and enhanced cash flow generation in the coming quarters.