Olam’s FY15 profits at risk from heightened currency volatility

Blame it on the ruble and the naira.

Olam’s FY15 profits are at risk from increased currency volatility in its Nigerian and Russian businesses.

The agribusiness giant had previously reported that its 2Q15 core PATMI slipped 19% year-on-year to $117m, due to adverse impact from the sharp devaluation of the Russian ruble and the Nigerian naira. This volatility had a net effect on the group's EBITDA of around $30m.

DBS estimates that continued currency volatility and elections in Nigeria will potentially affect demand and Olam’s ability to adjust selling prices in its Food Staples division. The restructuring of is Nigerian cashew business will also be a source of drag.

“While we project higher profits from FY16, as Olam’s c.S$3.2bn worth of immature assets reach their full maturity, it extracts synergies from the recently announced ADM Cocoa acquisition and benefits from lower interest costs from Temasek’s majority ownership, we see limited near term re-rating catalysts on account of the drag on FY15 earnings from currency volatility and negative free cash flows from the ADM Cocoa purchase,” stated DBS.

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