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Olam International books 68% climb in full-year earnings

This came on the back of exceptional gains, recorded as part of its restructuring effort. But core earnings are flat as Olam exited or downsized lower-margin businesses.

SINGAPORE: Olam International reported a 44 per cent decline in fourth quarter net profit to S$31.8 million. This was mainly due to an exceptional loss of S$16.7 million booked in the quarter compared to an exception gain of S$9.0 million in the same quarter last year.

Excluding exceptional items, Olam's operational net profit for the quarter increased 1.5 per cent to S$48.5 million. Group revenue for the same quarter also declined 11.4 per cent to S$5.76 billion. For the full year ended June 30, net profit rose about 68 per cent to S$608.5 million.

In a statement on Friday (Aug 29), Olam said this was due to "exceptional gains recorded during the period arising from the successful execution of various initiatives in the strategic plan." 

This was Olam's first results briefing since it got a new majority shareholder. Temasek now holds a 59 per cent stake in Olam, and together with concert parties, have control of around 80 per cent. Olam says it acted as a concert party with Temasek because it wanted to align the shareholder base to its strategy.

Said Olam International's CEO and Group Managing Director Sunny Verghese: "Our strategy was long-term; we were investing in upstream assets, in plantations and farming, all of which took about seven years to get to full maturity. And if you had shareholders who had holdings period of five or six months, you have a mismatch between the tenure of your strategy and the duration of your shareholders' holding periods. So we wanted to change the shareholder structure - to have shareholders who were both patient and had holding periods of more than five, six years."

Underpinned by global food demand, analysts say the fundamentals for commodity players like Olam are solid. However, they caution that investors need to be aware of the cyclical and seasonal fluctuations that affect prices in the sector.

"As far as an investor is concerned, you need to focus on things like how much leverage the company has; how much money is it borrowing. Currently, many companies are encouraged to borrow money, simply because interest rates are low. But I don't think interest rates are going to stay low forever. Eventually, interest rates will go up. So if these companies can - as in the case of Olam - reduce their reliance on leverage, on borrowings, and pay back some of those loans, then I think the industry looks good for the future," said CEO of The Motley Fool David Kuo.

Olam also gave an update on its three-year long strategic plan announced last April. The strategic review followed an attack by short-seller Muddy Waters in late 2012, although Olam has denied that the review was a response to the short-seller's allegations.

To date, the company has completed 14 out of 17 initiatives outlined and this released cash of S$603.9 million, generated gain of S$94 million and added S$16.5 million to its capital reserves.

Olam said the three remaining initiatives, including the recently announced sale of 25 per cent stake in the Packaged Foods business unit to Sanyo Foods, are expected to be completed within FY2015.

These are likely to release further cash of approximately S$313.1 million, generate a gain of approximately S$22.4 million and add approximately S$118.8 million directly to reserves.

Olam has proposed an ordinary dividend of 5 cents per share. And as part of the company's 25th anniversary celebration, the board has recommended an additional Silver Jubilee dividend of 2.5 cents per share.