SINGAPORE – Olam International Limited (Olam, the Group or the Company) reported higher earnings for the quarter (Q2 2017) and six months ended June 30, 2017 (H1 2017).
For Q2 2017, Profit After Tax and Minority Interest (PATMI) increased 28.5% year-on-year to S$147.7 million on improved operational performance across all four key segments, especially in the Food Category. Operational PATMI, which excludes exceptional items, grew 34.1% year-on-year to S$154.0 million.
The Group’s Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) grew by 18.4% to S$373.7 million on stronger performance by four of its five business segments, particularly the Food Category.
Edible Nuts, Spices & Vegetable Ingredients, Confectionery & Beverage Ingredients, Food Staples & Packaged Foods as well as the Industrial Raw Materials, Ag Logistics & Infrastructure segment1 all did better than a year ago.
Sales volumes were up 28.6% as most segments registered higher volumes. Revenue grew 30.9% primarily on the higher volumes.
For H1 2017, Olam achieved a 27.5% increase in PATMI to S$291.5 million as improved operational performance offset higher depreciation and amortisation expenses and finance costs, which resulted from strategic acquisitions and capital investments made in 2016. Operational PATMI was up 23.6% at S$297.8 million.
EBITDA registered 19.1% growth to S$772.3 million, as growth from the Edible Nuts, Spices & Vegetable Ingredients, Food Staples & Packaged Foods, Commodity Financial Services and Industrial Raw Materials, Ag Logistics & Infrastructure segments offset lower contribution from Confectionery & Beverage Ingredients.
Sales volumes increased 38.7% with growth from all segments, led by enhanced trading volumes in Grains and Edible Oils. Revenue grew by 26.5% on the higher volumes.
Olam generated higher positive Free Cash Flow to Firm of S$239.4 million in H1 2017 on lower net capital expenditure compared to a year ago (H1 2016: S$191.2 million).
Net gearing as at June 30, 2017 remained steady at 1.97 times.
The Board of Directors has declared an interim (one-tier tax exempt) ordinary dividend of 3.5 cents per share (H1 2016: 3.0 cents).
Segmental Review
Olam’s Executive Director and Group COO, A. Shekhar said: “Despite difficult trading conditions in the agri-complex, we achieved strong EBITDA and PATMI growth in Q2 2017. We also delivered higher Free Cash Flow to Firm in H1 2017.
“Our solid performance overall is a result of our strategy to invest selectively in prioritised platforms, maintain a strong cash flow focus and address areas of underperformance decisively.”
Revenue for the Edible Nuts, Spices & Vegetable Ingredients segment grew 16.0% in H1 2017, mainly on higher volumes and higher prices of cashew and peanuts compared to H1 2016. EBITDA grew 42.4%, primarily due to improved earnings from cashews, peanuts, almonds and sesame.
The Confectionery & Beverage Ingredients segment recorded a 6.7% increase in revenue on higher overall volumes and higher coffee prices, which was offset by lower cocoa prices in H1 2017. EBITDA declined by 5.5% as higher earnings from the Coffee platform was offset by lower contribution from the Cocoa platform, which experienced headwinds and margin pressure in its supply chain and trading business.
The Food Staples & Packaged Foods segment registered a 52.7% increase in revenue mainly on higher trading volumes, especially in Grains and Edible Oils in H1 2017. EBITDA grew 31.5% as most platforms within the segment showed improved performance.
Grains was a key growth driver as its origination and trading business, as well as its wheat milling operations in West Africa, continued to perform well.
Revenue for the Industrial Raw Materials, Ag Logistics & Infrastructure segment was up 49.9% on higher Cotton volumes in H1 2017. EBITDA edged up 1.2% as improved performance from GSEZ offset underperformance from Wood Products, while Cotton remained steady.
Commodity Financial Services also contributed to EBITDA growth with S$6.3 million in H1 2017 compared to S$0.9 million a year ago.
Outlook and Prospects
While expecting macro-economic uncertainties to continue through the year, Olam believes its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets.
Olam will continue to execute on its strategic plan and pursue growth in its prioritised platforms. It remains focused on turning around underperforming businesses, ensuring gestating businesses reach full potential and delivering positive free cash flow.
Olam’s Executive Director and Group COO, A. Shekhar said: “Despite difficult trading conditions in the agri-complex, we achieved strong EBITDA and PATMI growth in Q2 2017. We also delivered higher Free Cash Flow to Firm in H1 2017.
“Our solid performance overall is a result of our strategy to invest selectively in prioritised platforms, maintain a strong cash flow focus and address areas of underperformance decisively.”
