Olam International profits up 50% on rise in volume

Olam International Ltd reported on Thursday a 50.3% rise in net profit after tax for first-half ended December 31, 2009 (H1 FY2010).

This amounts to S$177.9 million in profits for Olam, a supply chain manager of agricultural products and food ingredients.

Net profit after tax for the second quarter (Q2 FY2010) was S$158.9 million or 53.6% higher than the previous corresponding quarter.

The H1 FY2010 results included net exceptional gains amounting to S$91.0 million on account of negative goodwill arising from the completion of the Purchase Price Allocation exercise for the acquisition of tomato processing assets in California.

H1 FY2009 had also recorded an exceptional gain of S$55.9 million from the partial repurchase of the convertible bonds in December 2008.

Excluding these exceptional gains, the core after-tax profit in H1 FY2010 still grew by a strong 39.1% to S$86.8 million, while Q2 FY2010 core after-tax profit grew by 42.8% to S$67.8 million, registering the highest quarterly earnings on record.

Olam’s CFO, Krishnan Ravikumar explained: "We saw a significant increase in both volumes and margins across much of the food category, which accounts for 80% of our portfolio, particularly in the Edible Nuts, Spices & Beans segment and in the Food Staples & Packaged Foods segment, both which underpinned the NC growth from this category during this period."

In the Confectionery and Beverage ingredients segment, NC margin per tonne grew by 11.6% from S$147 to S$164 reflecting the effectiveness of our value-added services strategy, he added.

"We also saw a faster-than-expected recovery in sales volumes for our Industrial Raw Materials segment which registered double-digit growth, particularly in Cotton where demand returned to near normal levels earlier than expected. Wood Products also experienced a revival in demand in our key markets in China, India and Vietnam," said Ravikumar.

Olam’s Group Managing Director and CEO, Sunny Verghese said: "During the first half, we focused on extracting the network value from our 20 products, 60 countries, 200,000 suppliers and 10,600 customers, realising the multiplier effects this network brings to us."

During H1 FY2010, Sales Volume improved by 20.2% to 3.38 million metric tonnes, leading to a rise in Sales Revenue to S$4.6 billion.

NC also grew 28.6% to S$361.1 million as a result of higher Sales Volume and margin per tonne which increased 7% from S$100 to S$107. Edible Nuts, Spices & Beans segment and Food Staples & Packaged Foods led the growth in Sales Volume and NC during this period.

Q2 FY2010 recorded a 23.0% increase in Sales Volume amid higher commodity prices for certain products, such as Edible Nuts, Cocoa, Coffee, Rice, Sugar and Cotton, resulting in Sales Revenue increasing by 27.3%.

NC grew 37.6% mostly due to margin improvements as per tonne margin improved from S$92 to S$103.

Recently, Olam successfully made acquisitions as part of its six-year strategic growth plan to invest selectively upstream and midstream in excess-return growth opportunities in the agri-business value chain.

Olam acquired close to 12,000 hectares of planted almond orchards and 89,094 megalitres of water rights in Australia from Timbercorp and associated entities for A$288 million (US$259 million) between September and November 2009. The orchards are expected to yield 39,500 metric tonnes of almonds by 2013, making Olam the second largest producer of almonds globally.

Recognising the growth prospects of PureCircle and high strategic value for Olam to develop the stevia supply chain and market Reb A globally, Olam increased its interest in PureCircle from 10% to 20% with an additional investment of US$67 million in December 2009.

In January 2010, Olam acquired 99.5% interest in Nigeria’s third largest wheat miller Crown Flour Mills and accompanying assets for US$107.6 million, as part of its wheat strategy to build a configuration of port-based wheat milling facilities in Africa. Earlier today, Olam indicated that it plans to invest US$31.5 million in a greenfield wheat milling facility in Ghana.