Olam’s profit jumps 15% to S$162.7m in 1H11

The group’s food segment accounted for 78% of revenue, as its rice and grains businesses in Africa flourished in the first half of the year.

Olam International Limited reported Profit After Tax of S$186.8 million for the half year ended December 31 2011, an increase of 6.4% over the previous corresponding half year and operational Profit After Tax and Minority Interests of S$162.7 million, up 14.9% over H1 FY2011.

Sales volume registered strong growth of 15.8% year-on-year to 4.52 million metric tons. Net Contribution improved 18.5% to S$607.1 million during the half year. NC Margin Per Ton grew by 2.4% from S$131 to S$134.

The relatively recession-resistant food category accounted for 77.6% of revenue and 83.2% of volumes. More importantly, this segment recorded strong NC growth of 32.1% and NC Per Ton growth of 12.2% over the previous period. The Industrial Raw Materials segment accounted for 22.4% of revenue and 16.8% of the volumes in H1 FY2012, registering volume growth of 7.4%. Due to very difficult trading conditions, NC in this segment declined 24% compared to the previous period.

The Edible Nuts, Spices & Beans segment continued on its strong growth trajectory in volume, NC and NC Per Ton in H1 FY2012. The period marked the commencement of commercial trials of the mechanical cashew processing factories in Ivory Coast and Nigeria, both of which are on track to meet the targeted productivity improvements and cost savings while maintaining output and quality standards. The Almond crop in Australia is progressing well with a record crop expected this season. Olam’s investment to build an Almond processing facility in Australia is tracking as per plan and the plant is expected to commence production in FY 2013.

The Confectionery & Beverage Ingredients segment registered strong growth during the period with the Cocoa business continuing to grow in volume. It is expected to meet its procurement targets despite forecast of a short crop this year. The Coffee business in the Central Andean region saw a turnaround during the period and is now expected to start contributing to earnings from this year onward. The soluble coffee factory in Vietnam has registered strong performance.

The Food Staples & Packaged Foods segment registered the highest volume growth across all our segments, driven by market share gains in Olam’s Rice and Grains businesses in the African markets. This period saw the successful commissioning of our wheat mill in Ghana where trial production is currently underway.

The Dairy and Sugar businesses continue to operate in markets more sensitive to difficult global economic conditions and the performance is currently expected to be below plan this year. During H1 FY2012, Olam concluded the acquisition of Trusty Foods Ltd, a tomato paste canning facility, and United Biscuits Ltd in Ghana. These companies are currently in the process of being integrated with Olam’s Packaged Foods business in West Africa. While UBL is expected to be a contributor to Olam’s FY2012 earnings, the TFL plant will require refurbishment and is expected to commence production in Q1 FY2013.

The Industrial Raw Materials segment is more sensitive to economic cycles and Olam’s Cotton and Wood Products businesses continued to face challenging market conditions in H1 FY2012.

Olam’s Australian and US cotton origination and marketing operations underperformed relative to past years during this period which put further pressure on margins and led to a decline in NC Per Ton in this segment. On the other hand, the Wool, Rubber and SEZ businesses in this segment have done well during H1 FY2012; the prospects for the remainder of FY2012 appear to be relatively more favourable. The SEZ business in particular has significantly outperformed during the period.

The Commodity Financial Services business registered a NC of S$0.4 million in H1 FY2012 as compared to a NC of S$ 16.2 million during the first half in the previous year. Given the exceptional volatility in these markets, the CFS team decided to reduce investment and risk capital exposure for much of this period. While the business was profitable in the second quarter, the business team is cautiously increasing market participation as the trading conditions and arbitrage opportunities improve.