Olam's improved operating efficiencies nullified by higher depreciation, interest costs

Profit growth markedly reduced.

According to CIMB, Olam is making steady strides in its focus on generating positive FCF in 2014. But this comes at the cost of markedly reduced profit growth, as reflected in the 1Q earnings miss. 

CIMB noted that Olam's improved operating efficiencies were nullified by higher depreciation and interest expenses.

Heres more from CIMB:

1Q revenue fell 8% yoy to S$4.3bn due to flat volumes and weaker commodity prices. However, core earnings went up 23% yoy to S$43.8m on the back of a 1.1% pt rise in EBITDA margin to 5.6%.

The improved operating efficiencies were nullified by higher depreciation and interest expenses. Nominal net gearing was unchanged at 1.9x, within the targeted ceiling of 2.0x.

In its bid to optimise its balance sheet, Olam announced the sale and leaseback of its Australian almond assets, which will release A$200m cash.

Some good, some bad
The edible nuts, spices and vegetables segment was the star, posting a 25% yoy jump in EBITDA, thanks to higher almond volumes.

EBITDA for confectionery & beverage ingredients increased 15% yoy, though weaker coffee prices could pressure margins in future. Last, food staples & packaged foods were uninspiring while EBITDA for industrial raw materials increased 32% yoy, driven by cotton.