Olam International Limited (“Olam”, “the Group” or “the Company”), today reported strong underlying operational performance for the three months ended March 31, 2015 (“Q1 2015”).
Operational Profit After Tax and Minority Interest (“Operational PATMI”), which excludes exceptional items, was up 25.7% to S$128.5 million. The performance was achieved despite the continued adverse impact of currency devaluation against the US dollar on Olam’s import and domestic distribution businesses in some markets.
Reported PATMI was down 92.1% compared to the previous corresponding period (“Q1 2014”). This is largely because of the swing in exceptional items in the two periods – in Q1 2014, the Company had reported net exceptional gains of S$293.9 million largely from the revaluation of its stake in PureCircle Limited as well as the sale and leaseback of its almond assets in Australia, while Q1 2015 included a net exceptional loss of S$97.2 million resulting mainly from the buyback of outstanding US$750.0 million 6.75% bonds due 2018. The bond buyback is expected to generate interest savings of about S$55.0-60.0 million per year over the next three years.
Sales volume fell 33.2% as a result of the Company’s deliberate strategy to grow in prioritised platforms while reducing volumes or exiting from lower-margin business. Revenue declined 10.7% to S$4.3 billion as lower volumes were offset by higher prices of some commodities.
EBITDA fell by a marginal 1.5% to S$330.1 million. All business segments except the Food Staples & Packaged Foods segment achieved higher EBITDA. This was despite the estimated net negative impact on EBITDA from currency devaluation of about S$12.0 million.
The Q1 2015 results also included a higher net loss of S$14.7 million on the fair valuation of biological assets compared to a net loss of S$8.7 million in Q1 2014.
Olam reported positive Free Cash Flow to Firm (“FCFF”) of S$120.2 million during the current period, a significant improvement from negative S$424.8 million a year ago. This was mainly because of higher operating and divestment cash flows, as well as lower working capital requirements.
Olam has completed 20 strategic initiatives since 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.
Capital expenditure (“Capex”) incurred in Q1 2015 was S$301.5 million as compared to S$180.0 million in Q1 2014. This included a S$225.9 million investment to acquire MMI which was not part of the strategic plan Capex guidance. Excluding the MMI investment, Capex for the period would be $75.6 million or 58.0% lower than Q1 2014.
Net gearing as at March 31, 2015 was 1.83 times, lower than the 2.03 times a year ago, and is in line with the 2016 target at or below 2.0 times.
Olam’s Co-founder, Group Managing Director and CEO, Sunny Verghese said: “Excluding the headline impact of exceptional items, our strong underlying performance in Q1 2015 is testament to the disciplined execution of our strategic plan initiatives.
“We continue to pursue our twin objectives of profitable growth and cash flow generation while investing in selective opportunities that can enhance shareholder value over time. We successfully completed the MMI acquisition in the US as well as the strategic partnership with Sanyo Foods in the Packaged Foods business in this quarter and expect to complete the ADM cocoa acquisition by the end of Q3 this year. Successful completion and execution of these strategic initiatives will position us for further growth in three of our large prioritised platforms.”
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