Olam reports Q1 profit growth but confectionery & beverage revenue drops 10.5 percent

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14 May 2018 --- Commodities trader Olam International says its first-quarter results 2018 were strong with PATMI (Profit After Tax and Minority Interest) increasing 9.8 percent year-on-year to S$157.9 million (Q1 2017: S$143.9 million) on reduced net finance costs and lower taxation.

The global agri-business says Operational PATMI, which excludes exceptional items, grew 13.0 percent year-on-year to S$162.6 million (US$122,145,120).

EBITDA was down 7.7 percent at S$368.1 million (US$276,413,615) against a strong Q1 2017 and there was a significant improvement in net gearing and investments in prioritized platforms, completion of planned divestments and continued working capital optimization, says Olam.

“We continued to deliver earnings growth and position ourselves for the future, including the recent launch of AtSource, which enables us to turn sustainability into a key business driver for transforming agricultural supply chains,” said Co-Founder & Group CEO, Sunny Verghese.

“Even as we successfully execute on our 2016-2018 Strategic Plan, we will be embarking on our next Strategic Plan exercise which will see us evolve all the elements of Olam 2.0 and lead the industry’s digital disruption and transformation.”

Net gearing as at March 31, 2018, was lower at 1.49 times compared to 1.98 times as at March 31, 2017, due to lower net debt from the reduction in working capital, lower gross capital expenditure, divestments and the conversion of warrants into equity.

Free Cash Flow to Equity (FCFE) for Q1 2018 was negative S$409.2 million (US$307,276,423) due to higher working capital usage during this quarter, partly offset by reduced capital spending, divestments and lower interest paid.

In Edible Nuts, Spices & Vegetable Ingredients, revenue was lower by 4.0 percent at S$874.5 million (US$656,600,572), mainly on reduced volumes year-on-year in peanuts.

EBITDA came down marginally by 1.6 percent to S$135.8 million (US$101,965,728), as compared with a strong set of results for Q1 2017.

In Confectionery & Beverage Ingredients, revenue decreased 10.5 percent to S$1.9 billion on lower volumes and lower prices. EBITDA declined 18.4 percent to S$61.2 million (US$45,952,154) due to a significantly lower contribution from Coffee in Q1 2018, as compared with an excellent performance in Q1 2017. Cocoa however delivered an improved performance.

In Food Staples & Packaged Foods, revenue increased 34.0 percent to S$2.6 billion, mainly on higher trading volumes in Grains. EBITDA declined by 15.1 percent to S$100.4 million (US$75,373,392) when compared with a very strong Q1 2017.

“We are pleased with our ability to deliver year-on-year profit growth against a strong performance in Q1 2017,” said Executive Director and Group COO, A. Shekhar.

“We executed on our planned investments and divestments, reduced financing costs and diversified our funding mix with ground-breaking initiatives, including Asia’s first sustainability-linked club loan.”

“Our gearing has improved significantly from a year ago, giving us additional growth headroom. We will continue to pursue profitable growth while improving our cost efficiency and capital productivity.”

Outlook
While global markets continue to experience political and economic uncertainties, Olam says its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets.

The company adds that it will continue to execute on its 2016-2018 Strategic Plan in 2018 and pursue growth in its prioritized platforms while putting sustainability at the heart of its business. It remains focused on turning around underperforming businesses, ensuring gestating businesses reach full potential and delivering positive free cash flow.

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