Olam International posts 1.5% dip in Q3 net profit to $20.4m

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  • Steady operating performance with Q3 2019 and 9M 2019 EBITDA up 25.2% and 16.9% to S$286.9 million and S$1.1 billion respectively, driven by higher contribution from the Food Category
  • Q3 2019 and 9M 2019 PATMI lower by 1.5% and 8.0% at S$20.4 million and S$250.7 million respectively
  • Excluding exceptional losses and the impact of SFRS(I) 162, Q3 2019 PATMI would have increased by 30.4% to S$27.0 million and 9M 2019 PATMI by 4.9% to S$288.0 million
  • Improved, positive Free Cash Flow to Equity (FCFE) of S$767.0 million for 9M 2019 (9M 2018: S$602.4 million)
  • Steady net gearing of 1.37x (9M 2018: 1.38x)
S$ million9M 20199M 2018 % ChangeQ3 2019Q3 2018% Change
 Volume (‘000 MT)9,036.923,256.724.99,936.79,650.13.0
 Revenue24,255.222,018.610.28,311.38,294.00.2
 EBITDA1,058.4905.116.9286.9229.125.2
 PAT216.6251.1(13.7)   8.914.7(39.2)
 PATMI250.7272.6(8.0)   20.420.7(1.5)
 Operational PATMI268.5274.7(2.3)20.520.7(1.0)
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Co-Founder & Group CEO Sunny Verghese said:

“In Q3 2019 we delivered another steady set of operational results with all Food Category segments performing better than last year amid continued market volatility.

As we celebrate our 30th anniversary, from a strategic standpoint, we are building on our strong foundations from leading food and agri-business to a more value-added ingredients business. By leveraging sustainability and digital as key enablers, we will help customers meet key consumer trends shaping our sector, thereby creating profitable and sustainable value for all stakeholders.”

Executive Director and Group COO, A. Shekhar said: “We maintained a robust balance sheet in 9M 2019, optimising working capital to deliver stronger free cash flows. Our disciplined efforts in proactively managing our capital structure position us well for the rest of 2019 as we approach the peak procurement season for several of our leading commodities and for high-growth strategic investments.

“We further reinforced our core purpose of ‘Re-imagining Global Agriculture and Food Systems’, with an innovative US$525 million sustainability loan tied to achieving specific key performance indicators that are aligned with our three purpose outcomes of Prosperous
Farmers and Food Systems, Thriving Communities, and Regeneration of the Living World.”

FINANCIAL RESULTS
Q3 2019

  • EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) grew by 25.2%
    to S$286.9 million (Q3 2018: S$229.1 million) primarily on higher contribution from the
    Food Category.
  • PATMI (Profit After Tax and Minority Interest) declined 1.5% year-on-year (YoY) to
    S$20.4 million (Q3 2018: S$20.7 million) as EBITDA growth was offset by higher net
    finance costs, depreciation and amortisation arising from the adoption of SFRS(I) 16.
    Excluding the impact of SFRS(I) 16, PATMI would have been 30.0% higher at S$26.9
    million.
  • Operational PATMI, which excludes exceptional items, was 1.0% lower YoY at S$20.5
    million (Q3 2018: S$20.7 million). Excluding the impact of SFRS(I) 16, Operational PATMI would have been 30.4% higher at S$27.0 million.
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9M 2019

  • EBITDA grew 16.9% to S$1.1 billion (9M 2018: S$905.1 million) on higher contribution
    from the Food Category and Commodity Financial Services.
  • PATMI declined 8.0% YoY to S$250.7 million (9M 2018: S$272.6 million) as EBITDA
    growth was offset by higher net finance costs, depreciation and amortisation, and
    exceptional losses. Excluding the impact of SFRS(I) 16, PATMI would have been
    marginally lower YoY at S$270.2 million.
  • Operational PATMI was lower by 2.3% YoY at S$268.5 million (9M 2018: S$274.7
    million). Excluding the impact of SFRS(I) 16, Operational PATMI would have increased
    by 4.9% to S$288.0 million.

Cash flow and gearing

  • Generated improved Free Cash Flow to Equity of S$767.0 million (9M 2018: S$602.4
    million) on higher operating cash flow and lower deployment of working capital.
  • Net gearing as at September 30, 2019, remained steady at 1.37 times (9M 2018: 1.38
    times) on lower net debt arising from the reduction in working capital.

9M 2019 SEGMENTAL PERFORMANCE
Edible Nuts and Spices

  • Revenue increased 2.6% to S$3.2 billion on growth in both Edible Nuts and Spices
    businesses.
  • EBITDA was 12.4% higher at S$311.3 million on the improved contribution from almonds and Spices offset by lower contribution from peanut and hazelnut businesses.
Read:  Olam International Q1 2019 profit up 6.9% at S$168.8 million

Confectionery and Beverage Ingredients

  • Revenue declined 7.3% to S$4.8 billion on lower coffee prices and lower Cocoa
    volumes.
  • EBITDA rose 22.6% to S$341.8 million with continued improvement in margins in the
    Cocoa business for both supply chain and processing operations.

Food Staples and Packaged Foods

  • Revenue rose 23.8% to S$12.7 billion mainly driven by growth in Grains trading
    volumes.
  • EBITDA grew 9.3% to S$271.8 million, led mainly by the Grains and Animal Feed
    business and improved contribution from Packaged Foods and the Edible Oil supply
    businesses, partly offset by the reduced contribution from Rice and Sugar.

Industrial Raw Materials, Infrastructure and Logistics

  • Revenue was up 2.7% to S$3.5 billion mainly due to higher Cotton sales volumes.
  • EBITDA declined 12.0% to S$116.5 million on lower contribution from Cotton, which
    offset improved contribution from GSEZ and Wood Products.

Commodity Financial Services

  • The segment reported an EBITDA of S$17.0 million, reversing a S$31.9 million loss in
    9M 2018.

OUTLOOK

Even as political and economic uncertainties continue to affect global trading conditions for the rest of the year, Olam believes its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets.

Olam continues to execute on the four strategic pathways for growth as set out in the 2019-2024 Strategic Plan. It will strengthen, streamline and focus its business portfolio, drive margin improvement by enhancing cost and capital efficiency, generate additional revenue streams by offering differentiated products and services, and explore partnerships and investments in select new engines for growth.

Olam is continually reviewing options for divesting and/or restructuring various assets and businesses in line with the Strategic Plan, some of which may be concluded in this financial year. The outcome and financial impact of such decisions (viz. one-off exit costs, gains/losses on sale and/or potential impairment of these assets/businesses) remain uncertain at this stage and are subject to multiple factors outside its control. Olam will make appropriate disclosures as and when there are material developments in this regard.

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