Find out what boosted Olam's latest results despite 8% revenue dip

Some bit of good news here.

According to CIMB, in 2Q, edible nuts, spices & vegetable ingredients recorded a 7% yoy decline in volumes, an 11% increase in revenue and 29% growth in reported EBITDA.

The almond and dehydrated onion businesses were the key contributors to the segment’s results, with almonds aided by higher upstream volumes as the estate in Australia matured as well as favourable trading conditions.

Here's more from CIMB:

As a result, Olam booked a net loss of S$15.4 from changes in the fair value of biological assets as its Australian almond plantation assets have achieved peak maturity.

The group expects to continue to book fair value losses in 2HFY14. In deriving our core net profit, we have stripped out both gains/losses from changes in the fair value of biological assets as well as gains/losses on disposal of assets.

We find it almost impossible to forecast these two line items. In contrast, Olam only strips out gains/losses on disposal of assets as it views changes in the fair value of its biological assets as a result of its operations.

We see the logic but are unable to quantify or forecast this part of the operations. The segment also saw a turnaround in the US tomato processing business through the normalisation of inventory levels and an improvement in selling prices as the oversupply situation moderates.

We understand that California is experiencing a drought, which will lead a drop in to crop volumes in the next harvest (Jun 2015). The limited crop volumes then might somewhat impact Olam’s business.

The two businesses that underperformed were the upstream peanut business in Argentina and mechanical cashew processing in Nigeria, which continued to face low utilisation. We understand that the kernel of the cashew nuts is rather sticky and processing them has been more difficult than envisioned.

A technical task force is looking to rectify this. Invested capital increased by S$234m from end-FY13 due to higher working capital deployed on the back of higher almond and tomato prices.

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