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Covid-19 has triggered a fallout in commodity prices, says Olam

WHILE China is not a “salient” market for Olam International, the Singapore-listed agri-food giant said demand for food items previously led by a thriving out-of-home dining segment there is significantly impacted while commodity prices have seen a fallout amid the Covid-19 outbreak.

“We don’t have manufacturing facilities in China of note, but China is a market for many of our food products... as people are not going out to dine, demand for these food items is definitely significantly impacted,” said Olam’s group chief executive Sunny Verghese at the company’s results briefing on Friday. Some of the products in Olam’s portfolio that have seen a drop in demand and a “fallout” in terms of lower prices include palm oil, grains, cotton, almonds, pepper and dairy.

Olam also flagged the potential for rising counterparty risks from customers in China, as well as disruptions in many commodity supply chains originating from China - the epicentre of the outbreak.

“China is not as salient a market for us from a market demand standpoint. The overall proportion of sales from China for Olam is small compared to our overall sales,” he said, adding however that if the virus spread is not contained in key markets such as Europe and the US, the company would have to contend with “demand compression”.

On Friday, the commodities trader reported a robust set of fourth quarter results with net profit quadrupling to S$313.4 million from a year ago chiefly owing to divestment gains in the first year of a six-year strategic plan. A better showing across various segments from cocoa, coffee, grains, animal feed to packaged foods and logistics further helped buoy earnings.

Olam made net exceptional gains of S$83.7 million for the quarter versus S$3.3 million a year ago due to one-off gains from the divestments of de-prioritised assets.

Quarterly Ebitda, or earnings before interest, tax, depreciation, and amortisation, grew 49.2 per cent to S$493.3 million primarily on higher contribution from the confectionery and beverage ingredients, food staples and packaged foods, and industrial raw materials, infrastructure and logistics segments.

Revenue for the three months to December grew 3.3 per cent to S$8.74 billion while sales volume rose 12 per cent.

Earnings per share sweetened accordingly to 9.41 Singapore cents for the quarter under review from 1.92 Singapore cents a year ago.

For the full year, net profit rose 62.2 per cent to S$564.2 million on the back of an 8.2 per cent improvement in revenue to S$32.99 billion.

Free cash flow to equity, or FCFE, was positive at S$134.6 million for 2019. Net gearing as at end-December 2019 stood at 1.38 times. Excluding the impact of SFRS(I) 16, net gearing would have been at 1.32 times.

The icing on the cake for the upbeat showing was a recommended final cash dividend of 4.5 Singapore cents per share, up from four Singapore cents a year ago. With an interim dividend of 3.5 cents, this would bring the total dividend for FY19 to eight Singapore cents per share, up from 7.5 cents in FY18.

Once approved by shareholders at the April 24 annual general meeting, the dividend will be paid on May 13, after books closure on May 5.

As at 12.34 pm, the counter was down S$0.03 or 1.7 per cent at S$1.71.