Olam International profit up 30% to S$267.2mln

Company attributes strong growth to success of its new corporate strategy.

Olam International Limited, a global, integrated supply chain manager and processor of agricultural products and food ingredients, reported a 30.1% increase in Net Profit After Tax to S$267.2 million for the nine months ended March 31, 2010 (9M FY2010). Excluding exceptional gains recorded in both the comparative periods, net profit grew 36.7% to S$170.6 million.

Net Profit After Tax for the three months ended March 31, 2010 (Q3 FY2010) was S$89.3 million, an increase of 2.6% when compared to Q3 FY 2009, a quarter in which Olam recorded significant exceptional gains. Without these exceptional gains in both periods, net profit grew 34.2% to S$83.8 million in Q3 FY2010, according to an Olam International report.

Olam's Group CFO, Krishnan Ravikumar said: "Net Profit growth of 36.7% for 9M FY2010 and 34.2% for Q3 FY2010 (excluding exceptional gains in both comparative periods) is strong evidence of the effectiveness of our new corporate strategy. More importantly, excluding exceptional gains, our Net Profit Margins have improved by 30 basis points from 2.03% to 2.33% in 9M FY2010 indicating that our selective upstream and midstream integration strategy is paying off."

He added: "We recorded S$96.6 million as exceptional gains for 9M FY2010. This was essentially on account of negative goodwill arising from the completion of the Purchase Price Allocation for the tomato processing assets in the US and the almond orchards in Australia."

Olam's Group Managing Director and CEO, Sunny Verghese remarked: "Our strong 9M FY2010 results provide demonstrable evidence of the effective execution of our corporate strategy that we announced in August 2009. We have executed 15 of the top 20 initiatives identified in that plan and have achieved early success. We executed on our plan to selectively integrate upstream into plantations (Almonds in Australia, Coffee in Laos), farming of select annual crops (Peanuts and Beans in Argentina, Rice in Nigeria and Mozambique) and Dairy farming (through New Zealand Farming Systems Uruguay. Similarly, we have also executed on our plan to selectively invest in value-added midstream processing initiatives (Wheat milling in Nigeria and Ghana, Tomato Paste Manufacturing in the US, Mechanical Cashew Processing in Nigeria and Cote d’Ivoire and Sweet & Condensed Milk and Evaporated Milk Manufacturing in Cote d’Ivoire). These initiatives will enable us to improve our Net Profit Margins over the course of our next two three-year planning cycles."

During 9M FY2010, Sales Volume rose 19.8% to 5.2 million metric tons while Sales Revenue increased 19.1% to reach S$7.3 billion. NC grew 29.2% to S$566.5 million as a result of higher Sales Volume and margin per ton. NC per ton increased 7.9% from S$102 to S$110. Food Staples & Packaged Foods and Edible Nuts, Spices & Beans segments led the growth in Sales Volume and NC during this period.

Sales Volume in Q3 FY2010 increased 21.0%, leading to an 18.4% rise in Sales Revenue during the period. With higher Sales Volume, NC grew 30.4% as per ton margin improved significantly from S$105 to S$113. While Food Staples & Packaged Foods and Industrial Raw Materials led the growth in Sales Volume, NC growth was broad-based across all four business segments.

The Edible Nuts, Spices & Beans segment grew Sales Volume by 24.3% and NC by 33.5% during 9M FY2010. In Q3 FY2010, Sales Volume increased 14.9% and NC rose 28.4%. The growth came largely from Spices & Dehydrates, Edible Nuts and Sesame. The strong performance by Spices & Dehydrates was mainly due to Olam Tomato Processing in the US performing better than expectations. The commissioning of the cashew pre-cleaning line in the US in Q3 FY2010 also supported margin growth in this segment.

The Confectionery & Beverage Ingredients segment registered single-digit growth in Sales Volume for both 9M FY2010 and Q3 FY2010 as a result of the continued short crop in Cocoa and Coffee in Cote d’Ivoire and Colombia respectively. Differentials for near-term supply of Cocoa and Coffee stayed firm on account of the short crop and sustained market demand.

This, coupled with an increased provision of value-added solutions, including value-added cocoa processing in Nigeria and Spain, helped improve NC per ton by 13.3% and 15.5% in 9M FY2010 and Q3 FY2010 respectively.

Sales Volume and NC for the Food Staples & Packaged Foods segment rose 26.5% and 37.8% respectively in 9M FY2010 as Q3 FY2010 recorded strong Sales Volume and NC growth at 30.5% and 35.9% respectively. All products within this segment experienced growth during this period, including Dairy Products which continued to see improvement in demand. Crown Flour Mills, the wheat processing facility which was acquired in Nigeria in January 2010, also contributed to the growth in Sales Volume during Q3 FY2010. The Sugar business encountered some headwinds in India and to a lesser extent in Indonesia as a result of a sharp correction in prices during Q3 FY2010.

The Industrial Raw Materials segment sustained its strong recovery into Q3 FY2010 as the pick-up in demand for cotton continued even as prices rallied. The exit of a few major competitors in the cotton industry helped Olam secure higher market share across several markets, including China, Turkey, Bangladesh, Thailand and Vietnam, leading to higher sales volumes. In addition, Wool exports from Australia improved during this quarter. Wood Products continued to see a revival in demand in Asia although demand for the housing market in China has softened a little with recent government measures to cool down the property market. Olam also started exporting teak wood from Costa Rica, a new origin for Wood Products. As a result, Sales Volume and NC increased 30.6% and 40.1% during this period with NC per ton rising 7.2% from S$97 to S$104. For 9M FY2010, Sales Volume grew 18.0% and NC improved 24.8%. Margin per ton recovered 6.3% from S$95 to S$101.

Given the results achieved in 9M FY2010 and the continued effective execution of its long term strategic growth plan, the Group is well on track towards meeting its growth targets for FY2010.