SINGAPORE — Olam revealed yesterday a soft finish to a stronger 2017, undermined by a “significantly lower contribution” from coffee. Excluding one-time factors, earnings rose a more modest 7.2% to Sing$109.7m, with underlying EBITDA down 10.4% at Sing$312.8m.
The decline reflected largely weak conditions in coffee, which for 2017 as a whole put in a “significantly lower contribution”, Olam said. EBITDA in Confectionery & Beverage Ingredients declined 19.5% to S$327.7 million.
Olam reported a net profit of S$265.1 million for the fourth quarter, more than double the figure in the same period a year ago.
This was due to one-off gains from divestments of the sugar refining business in Indonesia and edible nuts farmland assets in the US, lower depreciation and amortisation, and net finance charges.
For the three months ended Dec 31 last year, earnings per share (EPS) rose to 8.2 cents from 3.2 cents a year ago. Net profit for fiscal year 2017 was up 65.3 per cent to S$580.7 million from the year before. EPS stood at 18.6 cents, up from 11.5 cents in FY2016.
Co-Founder & Group CEO Sunny Verghese said:
“We successfully delivered on our key priorities for 2017 as part of our 2016-2018 Strategic Plan, closing the year with a strong set of results. Our earnings for the year grew significantly and our returns also improved. We generated record cash flows and further strengthened our balance sheet by reducing our gearing.
“These results were achieved on a combination of pursuing growth in prioritised platforms, working to turn around underperforming businesses and nurturing gestating assets.
“As such, I am pleased to share that the Board of Directors has recommended a final dividend of 4.0 cents per share adding to the interim dividend declared in Q2 2017, for a total dividend of 7.5 cents per share in 2017.
“While we may not be immune to near-term uncertainties for some agri-commodities, we believe we can continue to generate long-term, sustainable value for our stakeholders. This will involve not only executing on our Strategic Plan but crucially pursuing value in an environmentally and socially responsible way.”
Executive Director and Group COO, A. Shekhar said:
“Most of our business segments delivered strong performance during the year, with Edible Nuts, Cotton, Ag Logistics and Infrastructure being stand-out performers. This, together with our focus on divesting non-core assets, lowering capital expenditures and optimising our working capital enabled us to deliver strong cash flows.
“Extracting cost and capital efficiencies will be a continuing focus, while we pursue profitable growth.
“We further diversified our funding sources while bringing down our net debt. As a result of the recent warrant conversion, we boosted our equity position, giving us additional headroom for growth.”
Financial Results
Q4 2017
- PATMI (Profit After Tax and Minority Interest) increased 159.3% YoY (year-on-year) to S$265.1 million (Q4 2016: S$102.2 million) on one-off gains from strategic divestments of the sugar refining business in Indonesia and edible nuts farmland assets in the US, lower depreciation and amortisation, and net finance charges
- Operational PATMI, which excludes exceptional items, grew 7.2% YoY to S$109.7 million (Q4 2016: S$102.3 million).
- EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) was down by 10.4% at S$312.8 million (Q4 2016: S$349.0 million) as improved contribution from Edible Nuts, Spices & Vegetable Ingredients, Industrial Raw Materials, Ag Logistics & Infrastructure and Commodity Financial Services were offset by weaker contribution from the Confectionery & Beverage Ingredients and Food Staples & Packaged Foods segments.
2017
- PATMI increased 65.3% YoY to S$580.7 million (2016: S$351.3 million) on one-off gains from divestments, improved operational performance and lower taxes, offset by higher depreciation and amortisation expenses and finance costs.
- Operational PATMI grew 18.6% to S$431.5 million (2016: S$363.8 million).
- EBITDA improved by 10.4% to S$1.3 billion (2016: S$1.2 billion) with growth across most segments.
Cash flow and gearing
- Generated record positive Free Cash Flow to Firm (FCFF) of S$1.5 billion for 2017 (2016: -S$418.1 million) and Free Cash Flow to Equity of S$1.0 billion (2016: -S$765.8 million) on increased operating cash flows, significant reduction in working capital and gross capital expenditure, and divestments.
- Net gearing as at December 31, 2017 was lower at 1.46 times compared to 1.99 times as at December 31, 2016 due to lower net debt arising from the reduction in working capital, lower gross capital expenditure, divestments and the conversion of warrants.
2017 Segmental Performance
Edible Nuts, Spices & Vegetable Ingredients
- Revenue grew 12.8% to S$4.5 billion, mainly on higher volumes in Edible Nuts and spices along with higher almond and cashew prices compared with 2016.
- EBITDA grew 32.1% to S$438.4 million on stronger contribution from the Edible Nuts platform.
Confectionery & Beverage Ingredients
- Revenue increased 5.5% to S$8.1 billion on higher volumes, offset by lower coffee and cocoa prices.
- EBITDA declined 19.5% to S$327.7 million due to significantly lower contribution from Coffee, which was adversely impacted by tougher market conditions and short crops in the second half of 2017.
Food Staples & Packaged Foods
- Revenue increased 59.8% to S$9.8 billion mainly on higher trading volumes in Grains, Edible Oils, Rice and Dairy.
- EBITDA grew 8.9% to S$359.7 million, driven by better results from grains milling, animal feed, Rice and Dairy, which offset lower contribution from Edible Oils, Sugar and Packaged Foods.
Industrial Raw Materials, Ag Logistics & Infrastructure
- Revenue was up 39.2% to S$3.9 billion on higher Cotton volumes.
- EBITDA improved 45.9% to S$197.3 million on higher contribution from Cotton and GSEZ following the latterʼs commissioning of new ports and partial sale of port concession rights in Q4 2017, which compensated for the lower contribution from Wood Products.
Commodity Financial Services
- The segment reported an EBITDA of S$4.8 million in 2017 compared to a loss of S$1.6 million in 2016. This came largely from the funds business and Trade & Structured Finance, which generates incremental yield by utilising Olamʼs underlying agri-business trade flows.
Outlook
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 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.
