UPDATE: Olam reports 4Q18 net profit drops 72 percent, ‘below our expectations’

Singapore 50 dollar bill

This article was originally published on Thursday, 28 February 2019 at 8:11 A.M. SGT; it has since been updated.

Commodity trader Olam reported on Thursday its fourth quarter net profit dropped 71.6 percent on-year to S$75.31 million on a year-earlier gain and as coffee prices fell.

Sales of goods and services in the quarter ended 31 December rose 16.9 percent on-year to S$8.46 billion, it said in a filing to SGX before the market open on Thursday.

A large exceptional gain of S$155.4 million was posted in the year-earlier quarter, Olam said.

Operational profit after tax and minority interests, which excludes exceptional items, fell 34.4 percent on-year to S$72.0 million, amid lower contributions from peanuts, coffee, rice and dairy businesses, partly offset by improved performances from cocoa, packaged foods and wood products, Olam said.

‘Below our expectations’

“Compared with a strong performance in the previous year, our 2018 performance has been below our expectations amid tougher than anticipated market conditions, particularly in the second half of the year,” Sunny Verghese, co-founder and group CEO, said in the statement.

“Looking ahead, we are focused on executing on our Strategic Plan for 2019-2024 by investing in high-growth businesses in our portfolio where we have clear winnability. This will help us capitalize on key consumer trends, enabling us to achieve sustainable and profitable
growth,” Verghese added.

For the full year, Olam reported net profit fell 40.1 percent on-year to S$347.87 million on sales of goods and services of S$30.48 million, up 16.0 percent on-year.

Other operating expenses also nearly tripled to S$119.1 million in 2018 from S$42.9 million in 2017, mainly on unrealized foreign exchange losses after the Brazilian real, Indian rupee, Turkish lira and Argentinian peso all fell against the U.S. dollar, Olam said.

Historically low coffee prices

It also posted a net gain in the fair valuation of biological assets of S$61.3 million for the year, compared with a year-earlier net loss of S$15.3 million, mainly on improvements in the fair valuation of almond produce in Australia and palm fruit trees in Gabon, and on dairy assets in Russia and Uruguay.

Confectionery and beverage revenue declined 12.4 percent on-year in 2018 to S$7.1 billion, mainly on historically low coffee prices, but EBITDA for the segment rose 35.5 percent to S$444.0 million on an exceptionally good cocoa performance across both supply chain and processing operations, Olam said.

“The difficult market conditions which started in the second half of 2017 continued to impact the coffee supply chain business adversely throughout most of the year. Soluble coffee, meanwhile, continued to do very well as its increased capacity was fully sold out during the year,” Olam said.

The food staples and packaged foods segment saw revenue rise 48.5 percent for the year to S$14.5 billion, mainly on higher trading volumes in grains, but its EBITDA fell 19.7 percent on-year to S$288.8 billion, against a strong 2017, as an improved packaged foods performance was offset by lower contributions from dairy, rice, edible oils and animal feed businesses, Olam said.

“While the upstream operations in Russia did well, the farming operations in Uruguay experienced drought conditions, leading to higher feed costs. The rice business reported lower earnings as it reduced merchandising volumes into Africa due to intense competitive pressures in the market,” Olam said.

Peanut hit

The edible nuts and spices segment reported full year revenue fell 4 percent on-year to S$4.3 billion, on lower prices across multiple products, while earnings before interest, tax, depreciation and amortization (EBITDA) fell 22.5 percent to S$339.9 million against a strong performance in the year earlier, with the peanut contribution falling.

“The peanut farming operations in Argentina was adversely impacted by drought conditions and currency devaluation and the peanut business in the U.S. recorded lower shelling volumes amid an oversupplied market,” Olam said. “With the sale of the peanut shelling operations in Argentina to Adecoagro in early February 2019, the group will therefore cease peanut farming operations in the country.”

In the industrial raw materials, infrastructure and logistics segment, revenue rose 16.9 percent to S$4.5 billion for the year amid higher volumes from all businesses, but EBITDA fell 10.7 percent on-year to S$176.2 million on a lower contribution from GSEZ, which offset growth in wood products and rubber, the filing said.

The commodity financial services segment reported an EBITDA loss of S$13.1 million for the year, swinging from EBITDA of S$4.8 million a year earlier on losses from the now closed Fundamental Fund business, Olam said.


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