Olam's profits dropped 8.5% to $180.5m

Here's what to blame.

In a release, Olam International Limited today reported its Q2 FY2014 and H1 FY2014 results with significant progress on the implementation of its strategic plan.

The Group reported an 8.5% reduction in Profit After Tax and Minority Interests to S$180.5 million, while Operational PATMI, which excludes exceptional items, declined 2.6% to S$174.6 million.

For the six months ended December 31, 2013, Earnings Before Interest, Tax, Depreciation and Amortisation, Olam’s key metric for operating performance, improved 5.4% to S$564.8 million from the same period last year, reflecting margin expansion and improved operating efficiencies.

Sales volumes were down 5.3% in H1 FY2014 as compared to H1 FY2013, which had shown a record 71.9% growth over the prior period (H1 FY2012). These results include an overall reduction in the fair value of biological assets by S$44.2 million, from a net gain of S$32.2 million in H1 FY2013 to a net loss of S$12.0 million in H1 FY2014.

The decline in Operational PATMI was primarily driven by higher depreciation and amortisation expenses at S$110.6 million compared to S$83.9 million in H1 FY2013 and an increase in tax expenses to S$27.4 million as compared to S$18.0 million (excluding exceptional items) for the prior corresponding period.

The Group showed significant improvements on its free cash flow generation with increase in net operating cash flows to S$582.3 million (H1 FY2013: S$511.1 million), reduction in fixed capital investments to S$262.4 million (H1 FY2013: S$469.6 million), lower increase in working capital to S$574.9 million (H1 FY2013: S$816.2 million) and continued execution of its strategic initiatives to unlock value and release cash.

Net gearing was 2.06 times at H1 FY2014, which was lower than the 2.21 times gearing at H1 FY2013.