Olam International net profit dropped 1.3% in 1H 2011

Net Profit After Tax including exceptional gain was $175.5 million compared to $177.9 million achieved in 1H FY2010.

However, according to Olam International Limited, Net Profit After Tax excluding exceptional gain surged 63.5% to $141.9 million compared to $86.6 million achieved in the previous corresponding period.

The H1 FY2011 results included exceptional gain amounting to $33.6 million arising from the negative goodwill (net of transaction costs) of NZ Farming Systems Uruguay in December 2010. As against this, in H1 FY2010 the company recorded exceptional gain of $91.1 million for the acquisition of tomato processing assets in California in Q2 FY2010.

Net Profit After Tax (excluding exceptional gain) in Q2 FY2011 grew by 65.6% to $112.2 million from $67.8 million in Q2 FY2010. Net Profit after Tax (including exceptional gain) for the second quarter ended December 31, 2010 (“Q2 FY2011”) was $145.8 million compared to $158.9 million reported in the previous corresponding quarter (“Q2 FY2010”) due to lower exceptional gain recorded in Q2 FY2011.

Olam’s Group CFO, Krishnan Ravikumar explained the results: “The strong growth of 63.5% in operational net profits (excluding exceptional gain) in H1 FY2011 was driven by a 15.6% increase in Sales Volume and a 22.7% rise in Net Contribution per tonne. All five business segments, namely Edible Nuts, Spices & Beans, Confectionery & Beverage Ingredients, Food Staples & Packaged Foods, Industrial Raw Materials and Commodity Financial Services, contributed to the growth in NC.

“We continue to make disciplined and balanced capital allocation decisions to change the shape of our portfolio and enhance our margins. We are particularly pleased to have improved our cash-to-cash cycle materially during this period, which helped mitigate an increase in working capital requirements resulting from sharply rising commodity prices,” he added.

Olam’s Group Managing Director and CEO, Sunny Verghese said: “The Olam business model continues to deliver as we execute our strategy with discipline and rigour. Our H1 FY2011 interim results provide further evidence of the full effectiveness and future potential of our growth strategy. We have begun to reshape our portfolio by investing selectively in attractive-return upstream (plantations) and midstream (value-added processing) growth initiatives, which has helped us to enhance margins. We have also built a diversified portfolio focused on the agri-complex (comprising 20 agricultural commodities with a direct Olam presence in 65 countries) that improves the stability of our earnings profile.”

The company has had a strong H1 FY2011 with record growth (up 63.5%) in earnings (excluding exceptional gain). The period was characterised by sharply rising commodity prices with several agricultural commodities reaching historical or lifetime highs. In addition to rising prices, there was a substantial increase in volatility across the global agricultural sector.

Olam’s diversified product portfolio, origination and distribution reach, and selective integration across the agri-business value chain, combined with strong risk management capabilities, has allowed the Company to grow profitably under these market conditions. Strong execution of the Company’s strategy by expanding upstream selectively to include plantations (perennial tree crop plantation investments including palm, rubber, almonds and coffee), farming (annual crop farming investments including peanuts, soyabean and rice farming), hardwood forest concessions and dairy farming, as well as selective integration into midstream value-added processing activities (including cocoa processing, soluble coffee manufacturing, tomato paste manufacturing, peanut paste manufacturing, spice grinding, dehydrates manufacturing), have all contributed to generating solid returns and enhancing the Company’s margins in H1 FY2011.

During H1 FY2011, Sales Volume rose 15.6% to 3.9 million metric tonnes. Sales Revenue grew 40.5% to $6.48 billion as commodity prices increased substantially during the period. NC surged 41.9% to $512.5 million as a result of both higher Sales Volume and enhanced margin per tonne, with margins increasing 22.7% from S$107 to $131. Edible Nuts, Spices & Beans, Confectionery & Beverage Ingredients, Food Staples & Packaged Foods and Industrial Raw Materials segments all contributed strongly to the growth in Sales Volume and NC during this period.

Q2 FY2011 registered a 10.5% increase in Sales Volume; higher commodity prices supported the rise in Sales Revenue by 47.3%. NC grew 42.9% as per tonne margin improved 29.4% from $103 to $133.