SINGAPORE — Improved operational performance in its overall food category boosted Olam International Limited’s earnings 20% in the second quarter.
Profit after tax and minority interests (PATMI) for the quarter ended June 30 was S$114.9 million ($85.51 million), up from S$95.8 million in the same period a year ago. For the first half of the year, PATMI increased 73% to S$228.6 million ($169.8 million), up from S$132.1 million in the same period of last year.
Prior period financial statements have been restated due to changes to accounting standards pertaining to Agriculture (SRFS 41) and Property, Plant and Equipment (SRFS 16) that came into effect Jan. 1.
Revenue for the quarter was S$4.981 million, up 3.5% from S$4.811 million. For the first half, revenue was S$9.742 billion, up 6.7% from S$9.132 billion from the same period of last year. Sales volume was 3.5 billion tonnes for the quarter and 6.44 billion tonnes for the first six months.
|Sunny Verghese, co-founder and CEO.|
“Our strong operational and financial performance amid ongoing global macroeconomic volatility validates our differentiated strategy,” Sunny Verghese, co-founder and chief executive officer, said when results were announced on Aug. 12. “We look forward to generating value from our recent initiatives, including the flour and pasta manufacturing facilities in Nigeria, our enlarged peanut shelling business in the U.S. as well as our JV in Japan with strategic partner Mitsubishi Corporation. Our uniquely shaped portfolio and strong pipeline of gestating assets will contribute to earnings going forward.”
Olam’s Food Staples & Packaged Foods earnings before interest, tax, depreciation and amortization (EBITDA) for the second quarter was S$79.9 million, up from S$52.8 million a year earlier. First half EBITDA was S$165.6 million, up from S$132.8 million in the same period of last year. Sales volumes for the quarter were 2.11 billion tonnes, up 19.8% compared to the same period of last year. As a result of the higher volumes, revenue increased 12.6% even as rice, palm and dairy prices declined during the period.
“Food Staples and Packaged Foods business, which has been a mixed story last year when we had faced some headwinds in several platforms in this segment, has turned around largely, barring the Packaged Food business,” said Neelamani Muthukumar, president and group CEO. “So wheat milling along with the BUA wheat milling and pasta-manufacturing asset that we acquired, along with Ghana, Cameroon and Senegal, all are performing very well in the wheat milling business.”
Olam said in January that it was acquiring the wheat milling and pasta manufacturing assets of the BUA Group, which is among the top five wheat millers in Nigeria. The purchase included two wheat mills and pasta manufacturing facility in Lagos, a non-operating mill in Kano in the north of Nigeria, and a wheat mill and pasta manufacturing plant that was under construction in Port Harcourt.
EBITDA growth for the segment was 24.7% due to improved performance across most platforms, except Packaged Foods, whose performance was affected by continued currency volatility and disruption of its dairy and beverage juice production after a plant fire in in Nigeria.
“We have continued to execute on our 2013 strategic plan,” Muthukumar said. “We have completed 22 initiatives to date, releasing cash of S$1.2 billion, resulting in a P&L gain of S$150 million, and also the addition of another S$150 million to capital reserves. Our JV that we have announced along with Mitsubishi to import and distribute various commodities in Japan is on track, and is expected to commence operations on Oct. 1 this year.”
The new joint venture, Mitsubishi Agri Alliance Ltd (MCAA), will import and distribute coffee, cocoa, sesame, edible nuts, spices, vegetable ingredients and tomato products in the Japanese market. Mitsubishi will hold 70% of the joint venture and Olam 30%.
“More importantly we have continued to invest mainly in our prioritized platforms,” Muthukumar said. “We had announced setting up of an organic animal feed, poultry breeding farms and hatchery plant in Nigeria for $150 million. We have acquired Brooks Peanut Company, a U.S. shelling company in Alabama, U.S., along with our Universal Blanchers and the McCleskey Mills that we acquired in Georgia state last year, and combined with the Brooks Peanut Company we will now become the third largest peanut shelling company in the U.S.”
Olam plans to set up two animal feed mills, poultry breeding farms and a hatchery to produce day-old-chicks in Nigeria. The project will be Nigeria’s largest integrated animal feed mill, breeding farm and hatchery, Olam said.
“We have done a bolt-on acquisition of an existing palm plantation and palm milling assets in Gabon from SIAT Gabon, for $25 million that we believe will help us in utilizing our initial produce from our Awala plantation on the fresh food bunches which will be milled and refined and sold locally in Gabon,” Muthukumar said. “We have also stepped up our acquisition in the joint venture in Mozambique, which is primarily doing palm and sunflower refining in the Southern part of Mozambique in Maputo. With the 100% acquisition we are now well positioned to enhance and expand our palm milling operations, and refining and distribution operations, along with our organic plant that we have set up in central Mozambique, in Beira.”
On June 1, Olam announced it would be acquiring the remaining 50% interest in Acacia Investments (AI) it does not already own from its joint venture partner for $24 million. Al has a significant presence in edible oils refining and distribution in East Africa. Olam acquired its first 50% share in AI in October 2012 for $35 million.
“We are pleased with the steady EBITDA growth across most of our businesses as our diversified portfolio and targeted investments in prioritized platforms performed well despite challenging industry and financial market conditions,” said A. Shekhar, executive director and group chief operations officer. “We are also benefiting from our debt optimization initiatives. All these measures taken together will continue to drive profitable growth.”