Olam International Limited (“Olam”, “the Group” or “the Company”) today reported its results for the quarter (“Q3 2015”) and nine months ended September 30, 2015 (“9M 2015”)*.
For Q3 2015, Operational Profit After Tax and Minority Interest (“Operational PATMI”), which excludes exceptional items, increased 6.2% year-on-year (“YoY”) to S$34.2 million. Reported PATMI declined 30.0% to S$31.0 million from S$44.3 million in the previous corresponding period due to exceptional items recorded during the two periods. In Q3 2014, Olam recorded a net exceptional gain of S$12.1 million while in Q3 2015, it recorded a net exceptional loss of S$3.2 million.
Sales volumes and revenues were up 3.0% and 4.0% respectively as Olam continued to grow in its prioritised platforms.
All segments registered growth except Food Staples & Packaged Foods, which faced lower volumes, prices and the continued underperformance of its upstream Dairy operations, leading to a 11.3% decline in overall Earnings Before Interest, Tax, Depreciation, and Amortisation (“EBITDA”) to S$194.6 million.
For 9M 2015, Olam achieved strong underlying growth as Operational PATMI increased by 41.0% YOY to S$258.0 million. Reported PATMI declined 66.8% to S$157.0 million largely due to exceptional items recorded during the two periods. In 9M 2015, Olam booked a net exceptional loss of S$101.0 million as against net exceptional gains of S$289.3 million in 9M 2014.
Sales volumes and revenue were lower by 17.2% and 8.7% respectively than a year ago as Olam continued to execute on its business strategy to grow in prioritised platforms while reducing volumes or exiting from lower-margin businesses.
EBITDA declined by 1.6% YoY to S$809.8 million mainly as a result of the decline in contribution from the Food Staples & Packaged Foods segment.
The 9M 2015 results included a higher net loss of S$31.5 million on the fair valuation of biological assets compared to a net loss of S$7.5 million in the prior corresponding period.
The Group continued to execute its debt optimisation initiatives, with net financing costs down from S$369.7 million in 9M 2014 to S$327.6 million in 9M 2015.
It reported positive Free Cash Flow to Firm (“FCFF”) of S$5.8 million in 9M 2015 even as it invested S$234.7 million in capital expenditure for the acquisition of McCleskey Mills (“MMI” which was not part of the strategic plan) and deployed higher working capital.
Net gearing as at September 30, 2015 was 1.43 times, significantly lower than the 1.85 times as at end-December 2014, and well in line with the 2016 target of 2.0 times or lower.
Strategic Partnership with MC
Olam raised approximately S$915.0 million by issuing 332.73 million new ordinary shares to MC at S$2.75 per new share, representing approximately 12.0% of the Company’s enlarged and paid-up share capital (excluding treasury shares) upon completion.
The transaction sets the platform for a long term strategic partnership between Olam and MC that leverages the strengths of both companies to increase their participation in the Japan market and collaborate in mutually beneficial business opportunities.
MC, in a separate and independent transaction, also acquired 222.0 million shares from the Kewalram Chanrai Group, representing approximately 8.0% of the enlarged and paid-up share capital (excluding treasury shares) of the Company immediately after the new shares issuance.
With these two transactions, MC is now Olam’s second largest shareholder with a 20.0% stake in the Company. Temasek Holdings remains Olam’s majority shareholder with a 51.4% stake.
Completion of the Acquisition of ADM’s Cocoa Business
On October 16, 2015, the Company announced the completion of its acquisition of ADM’s cocoa business at an enterprise value of US$1,204.0 million. Post acquisition, Olam Cocoa is now amongst the top three integrated global suppliers of cocoa beans and products. The closing value, estimated at US$550.0 million in fixed assets and US$654.0 million in working capital, is subject to the final purchase price adjustment post-closing.
Olam’s Co-Founder, Group Managing Director and CEO, Sunny Verghese said: “We are pleased to have taken significant steps this quarter toward realising our long term strategy.
“The addition of Mitsubishi Corporation as a new long term strategic shareholder places us in a much stronger position to undertake further growth opportunities in our prioritised platforms. Further, the acquisition of ADM Cocoa makes us one of the top three integrated cocoa beans and products suppliers in the world, effectively transforming our competitive position in the industry.”
Olam’s Executive Director of Finance and Business Development, A. Shekhar said: “We are pleased with the continued improvement in operational performance across most of our business segments while we work on restructuring the upstream Dairy operations in Uruguay.
“Our sustained focus on capital management has helped reduce gearing and borrowing costs. We remain on track to achieve our strategic plan objectives of profitable growth and free cash flow generation by 2016.”