Olam International Limited (“Olam”, “the Group” or “the Company”) today reported strong underlying performance for the quarter (“Q2 2015”) and six months ended June 30, 2015 (“H1 2015”)*.
For Q2 2015, Operational Profit After Tax and Minority Interest (“Operational PATMI”), which excludes exceptional items, nearly doubled to S$95.2 million from S$48.5 million in the previous corresponding period (“Q2 2014”). Reported PATMI nearly tripled to S$94.7 million from S$31.8 million in Q2 2014.
The Group’s Earnings Before Interest, Tax, Depreciation, and Amortisation (“EBITDA”) grew 6.1% year-on-year to S$285.1 million as four out of five segments registered growth.
Sales volumes and revenues declined 17.0% and 16.4% respectively as part of the Company’s strategy to grow in prioritised platforms while reducing volumes or exiting lower-margin businesses.
The results included a net loss of S$19.2 million on the fair valuation of biological assets compared to a net gain of S$17.1 million in Q2 2014.
For H1 2015, Olam demonstrated its strong underlying fundamentals as Operational PATMI increased by 48.3% year-on-year to S$223.7 million. Reported PATMI declined 70.6% from S$428.0 million a year ago to S$126.0 million largely because of the previously reported exceptional items during the two periods. In H1 2014, Olam booked net exceptional gains of S$277.2 million from the revaluation of Olam’s stake in PureCircle Limited and the sale-and-leaseback of its Australian almond assets, while H1 2015 included a net exceptional loss of S$97.7 million mainly from the buyback of bonds, which is expected to generate cost savings of S$55-60.0 million annually over the next three years.
EBITDA grew 1.9% year-on-year to S$615.2 million as growth from three of its five business segments was offset by a decline in contribution from the Food Staples & Packaged Foods and Industrial Raw Materials segments.
Sales volumes and revenue were lower by 25.7% and 13.8% respectively than a year ago as Olam continued to execute on its business strategy and grow in prioritised platforms while it reduced volumes or exited from lower-margin businesses.
The results included a net loss of S$33.9 million on the fair valuation of biological assets compared to a net gain of S$8.4 million in H1 2014.
Olam has completed 20 strategic initiatives under its strategic plan announced in April 2013, which released cash of S$966.1 million, generated a P&L gain of S$125.2 million and added S$154.2 million to capital reserves. This includes the sale of a 25.0% stake in the Packaged Foods business to Sanyo Foods, which was completed in Q1 2015, releasing cash of S$219.1 million and adding S$106.2 million to reserves.
Olam reported positive Free Cash Flow to Firm (“FCFF”) of S$135.0 million in H1 2015 even after it recorded the investment outlay from the acquisition of McCleskey Mills Inc. (“MMI”), which was not part of strategic plan Capex guidance. This was because a combination of higher operating cash flow, divestment cash flows and lower working capital being deployed helped offset the higher gross Capex.
Net gearing as at June 30, 2015 was 1.82 times, in line with the 2016 target of 2.0 times or lower.
The Board of Directors has declared an interim (one-tier tax exempt) dividend of 2.5 cents per share.
Olam’s Co-Founder, Group Managing Director and CEO, Sunny Verghese said: “Our strong performance despite the current depressed macroeconomic climate is testament to our disciplined focus on executing our strategic plan. We continue to expand selectively in prioritised platforms while reducing our presence or exiting from lower-margin businesses.
“We remain focused on pursuing profitable growth and are excited by the growth opportunities offered by the transformational acquisitions of McCleskey Mills, which has already started to contribute to earnings, and of ADM’s cocoa business, which is expected to be completed in Q4 2015.”
Olam’s Executive Director of Finance and Business Development, A. Shekhar said: “We are pleased with the overall execution against our plan and the fact that most of our platforms continued to deliver EBITDA growth in H1 2015. We stay focused on taking decisive actions to manage the few underperforming profit centres, especially the Dairy farming operations in Uruguay. Besides driving profitable growth, we also delivered positive Free Cash Flow to Firm during this period despite having a larger Capex outflow on account of the acquisition of McCleskey Mills. We are making good progress on our debt optimisation, which has clearly contributed to the improved bottom line performance.”