SINGAPORE — Olam International Ltd reported on Feb. 13 that its net profit for the six months ended Dec. 31 dropped 9.7%, mostly due to currency devaluation across many markets.
Olam reported a net profit of S$118.74 million ($87.59 million) for the second quarter, a drop of 12% compared to S$134.9 million in the same period a year earlier. Net profit for the first half of the year was S$163.03 million, down from S$180.5 million for the same period in 2013. Profits dropped despite improved revenue for both periods.
Olam said severe and concurrent currency devaluation against the U.S. dollar across major markets, including Russia, Nigeria, Brazil and Australia and to a lesser extent Turkey, Mozambique and Indonesia hurt its results. These results also included a net loss of S$12 million on the fair valuation of biological assets compared to a net loss of S$15.4 million in the fourth quarter of 2013.
For the first half of the year, the 11.6% decline in sales volume compared to the previous corresponding period was a result of the company’s strategy to grow in prioritized platforms while reducing volumes from lower margin businesses. Despite lower volumes, revenue increased by 4% to S$9.2 billion due to a sharp increase in commodity prices of almonds, hazelnuts, cocoa and coffee.
The prioritized platforms, including edible nuts, cocoa, coffee, spices & vegetable Ingredients in the U.S. and wheat milling reported a steady underlying growth in EBITDA. This was however offset by the underperformance in hazelnuts, dairy farming in Uruguay and the adverse impact of sharp currency devaluation across major markets, leading to a decline in overall EBITDA by 11% to S$502.6 million.
“Our overall performance was adversely impacted by the unprecedented concurrent currency devaluation against the U.S. dollar across many of our key markets. However, we are pleased with the disciplined execution against our strategic plan objectives,” said Olam’s Co-founder, Group Managing Director and Chief Executive Officer Sunny Verghese. “We are equally excited by the growth opportunities presented by the transformational acquisitions announced recently in two of our prioritised platforms – McCleskey Mills, Inc. in Edible Nuts and the global cocoa business of Archer Daniels Midland Co.
“We continue to stay focused on executing our strategic plan while navigating carefully through the current macro-economic uncertainty and currency volatility, which we expect will continue through 2015.”
Food Staples & Packaged Foods volumes fell 16.1% while revenue decreased by 2.3% in the first half of 2014 primarily due to discontinued operations in Australia and South Africa. Wheat milling in Africa, grains exports from Russia, sugar and the rice distribution businesses performed well.
Overall EBITDA for the segment declined by 24.2% due to lower sales volumes, continued underperformance in the dairy farming operations in Uruguay and the impact of currency devaluation, particularly in the import and domestic businesses in Nigeria and Russia.