Olam's Q1 earnings tumble on exceptional items

Singapore

AGRIBUSINESS group Olam International - which has changed its financial year-end from June 30 to Dec 31 - on Friday reported a net profit of S$31.3 million for its first quarter ended March 2015, 92.1 per cent down from the year-ago period's S$396.1 million.

Explaining the sharp fall in the profit after tax and minority interests (Patmi), the soft commodity trader said the January-March quarter had a net exceptional loss of S$97.2 million, resulting mainly from the buyback of bonds. This was against an exceptional gain of S$293.9 million for the year-ago period stemming principally from the revaluation of its stake in PureCircle Ltd. The bond buyback is expected to generate interest savings of about S$55-60 million per year over the next three years, the group said.

The Q1 2015 results also included a higher net loss of S$14.7 million on the fair valuation of biological assets compared to a net loss of S$8.7 million in Q1 2014, said Olam.

Citing strong underlying performance, Olam said that its operational Patmi - that is Patmi after stripping out exceptional items - was up 25.7 per cent at S$128.5 million.

Revenue for the quarter was down 10.7 per cent at S$4.32 billion as sales volume fell 33.2 per cent from Q1 2014, "with continued growth in prioritised platforms offset by reduced volume from lower margin businesses that were discontinued or restructured in line with our strategic plan", said Olam.

"Subsequent to the strategic plan announcement in April 2013, we have completed 20 strategic initiatives to-date which have released cash of S$966.1 million, generated a P&L gain of S$125.2 million and added S$154.2 million directly to our capital reserves," said Olam.

All of Olam's business segments, safe for the food staples & packaged food segment - in particular, the continued underperformance in its dairy farming operations in Uruguay, and a currency devaluation of about S$12 million from its import and distribution businesses in Nigeria, Ghana and Mozambique - achieved higher Ebitda (earnings before interest, tax, depreciation and amortisation) for the first quarter. Overall Ebitda fell by a marginal 1.5 per cent to S$330.1 million.

The group also reported positive free cash flow to firm of S$120.2 million for the quarter, a stark contrast from a negative S$424.8 million a year ago - a key criticism of analysts since the 2012 attacks from US short seller Muddy Waters. Olam said that this was mainly due to "higher operating and divestment cash flows, lower working capital requirements and net of the investment in McCleskey Mills Inc of S$225.9 million".

Earnings per share for the quarter were 1.12 cents and net asset value per share was 166.2 cents. No dividend was declared for the quarter.

Olam's co-founder and group managing director and CEO Sunny Verghese said: "Excluding the headline impact of exceptional items, our strong underlying performance in Q1 2015 is testament to the disciplined execution of our strategic plan initiatives." In a results briefing on Friday, Olam pledged to maintain its focus on executing its strategic plan initiatives and optimising its debt portfolio.

On Friday, Olam shares closed trading down one per cent at S$1.98.