Olam 2Q19 net profit drops 35 percent on changes to lease accounting

Palm tree at plantation in Sumatra, IndonesiaPalm tree at plantation in Sumatra, Indonesia

Correction: This article has been updated to correct the percentage change for first half revenue, which rose 16.2 percent on-year.

Olam International reported Wednesday its second quarter net profit dropped 34.5 percent on-year to S$61.49 million on changes to accounting for leases.

Excluding the accounting change, second quarter net profit would have been higher at S$73.6 million, Olam said

Revenue for the quarter ended 30 June rose 15.7 percent on-year to S$8.60 billion, the agri-business company said in a filing to SGX.

“We delivered a steady set of results amid growing political and macroeconomic uncertainties affecting most of our markets,” Sunny Verghese, CEO of Olam, said in the statement.

“We are making good progress in executing our new strategic plan. We are investing in several new initiatives to offer differentiated solutions to our existing customers as well as develop new customer segments and channels. We also stay focused on streamlining our portfolio by recycling capital and focusing on high-growth businesses,” Verghese added.

Depreciation increased 34.2 percent on-year to S$124.79 million, while finance costs rose 38.1 percent on-year in the quarter to S$187.66 million on changes to accounting for leases, Olam said.

For the first half, Olam reported net profit fell 8.5 percent on-year to S$230.36 million on revenue of S$15.94 billion, up 16.2 percent on-year.

Edible nuts

The edible nuts and spices segment reported first half earnings before interest, tax, depreciation and amortization (EBITDA) of S$255.6 million, up 8.0 percent on-year, on improved contributions from cashew, almonds, hazelnuts and spices, offset by lower contributions from peanuts.

Revenue for the segment fell 1.0 percent on-year to S$2.0 billion in the first half on lower peanut prices, the filing said.

Confectionery

The confectionery and beverage ingredients segments posted EBITDA rose 34.7 percent on-year to S$240.2 million in the first half on improved margins in the Cocoa business in both supply chain and processing operations.

Revenue for the segment fell 9.5 percent on-year to S$3.2 billion on lower coffee prices and reduced sales volumes, the filing said.

Food staples

The food staples and packaged foods segment’s first half EBITDA increased 5.2 percent on-year to S$176 million, mainly on improved contributions from grains, dairy and edible oil supply chain businesses and packaged foods, partly offset by lower rice and sugar contributions.

Revenue for the segment increased 38 percent on-year to S$8.2 billion, on growth in grains trading volumes, the filing said.

Industrial raw materials

The industrial raw materials, infrastructure and logistics segment’s first half EBITDA fell 10.2 percent on-year to S$84.5 million on lower contributions from cotton and the closure of the rubber and fertilizer trading desks, offsetting growth in wood products.

Revenue for the segment increased 14.9 percent on-year to S$2.5 billion on higher sales volume for cotton and rubber, the filing said.

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