Olam first quarter FY2011 profit up 56% to S$29.7mln

Growth in four business segments contributed to the group’s sales volume surge as key strategic initiatives worked out.

Olam International Limited (“Olam” or the “Company”), a leading global, integrated supply chain manager and processor of agricultural products and food ingredients, on Thursday reported a Net Profit After Tax of S$29.7 million for the first quarter ended September 30, 2010 (“Q1 FY2011”), an increase of 56.0% over the previous corresponding quarter (“Q1 FY2010”).

The higher profits reported during this quarter was driven by a 21.1% increase in Sales Volume and a 40.5% rise in Net Contribution (NC). The four business segments, namely Edible Nuts, Spices & Beans, Confectionery & Beverage Ingredients, Food Staples & Packaged Foods and Industrial Raw Materials, contributed to the growth in Sales Volume, Sales Revenue and NC. The fifth segment, Commodity Financial Services, also registered a significant increase in NC.

Olam’s CFO, Krishnan Ravikumar said: “We are encouraged to see that all five business segments have contributed to the strong performance in Q1 FY2011. During the quarter, we continued to strengthen our balance sheet to support our future growth plans by successfully launching a debut unrated 10-year bond issue for US$250 million as well as a 3-year syndicated bank loan facility for US$350 million in the US.”

Olam’s Group Managing Director and CEO Sunny Verghese said: “Our first quarter results provide continuing evidence to both the effectiveness and successful implementation of our corporate strategy as announced in 2009. We are executing well against our key strategic initiatives and the results of these intiatives have met or exceeded our initial expectations. Given the growing supply-demand imbalance in the agri and industrial business segments in which we participate, we believe that this industry will continue to offer attractive growth opportunities and positive returns. To take advantage of these opportunities, we believe we have now assembled the core capabilities required to advance sustainable leadership in our industry.”

Segmental Review
The Edible Nuts, Spices & Beans segment recorded a volume growth of 2.4% and NC growth of 29.6%, leading to NC per tonne increasing from S$133 to S$168 during this quarter. The lower volume growth was due to the exit from the Pulses business from Q1 FY2011. The stronger NC reported was partly contributed by the consolidation of the results of Gilroy Foods & Flavours, the dehydrated and vegetable products business which the Company acquired with effect from July 2010.

The Confectionery & Beverage Ingredients segment registered a 3.8% growth in Sales Volume and a 27.9% growth in NC in Q1 FY2011. NC per tonne increased from S$155 to S$191. The lower than expected volume growth was largely due to the delayed start of the West African cocoa season.

The Food Staples & Packaged Foods segment recorded strong results this quarter by growing its Sales Volume by 36.2% and NC by 38.5% during Q1 FY2011. The strong volume growth in this segment was broad-based. During this period, Olam was able to significantly increase its market share for Wheat in the East African and Southern African markets. The higher NC in this segment was also supported by the Wheat milling business in Nigeria.

The Industrial Raw Materials segment registered a 28.7% growth in Sales Volume and 46.9% growth in NC in Q1 FY2011. NC per tonne improved from S$112 to S$128. These results were achieved on the back of the Company’s continued growth in the Cotton business with increased market share in Australia and the US and better off-take of Wood Products across Asia.

The Commodity Financial Services segment experienced a good quarter in Q1 FY2011 reversing its NC loss from a year ago to a positive S$4.4 million.

Prospects
Olam continues to execute its strategic growth plan by pursuing integrated value-chain leadership in three products, selectively expanding our value-chain participation in seven products, and entering into new adjacent businesses that build on its latent assets and capabilities. In addition, Olam will continue to grow, optimise and extract full value from its Supply Chain & Value-added services business.

With a significantly enhanced competitive position, the creation of strong business platforms, and the opportunity to realise synergies between existing and newly acquired businesses, Olam is currently positive about its growth prospects and the achievement of the strategic and financial targets set out in its corporate strategic plan announced in August 2009.