Olam expects H2 loss from impairment, but sees positive net profit for FY2020

AGRI-FOOD giant Olam International said on Wednesday that it will report a loss for the second half of 2020, arising from an impairment on Olam Palm Gabon (OPG) but expects net profit for the full year to remain positive.

In a profit guidance announcement filed on the exchange, Olam said the group will record a one-off, non-cash and non-recurring impairment arising from a reduction in the recoverable value of the investment in OPG amounting to around US$350 million in its financial statements for H2 2020 and FY2020.

"Arising from this one-off, non-recurring and non-cash impairment on OPG, the group will report a loss in H2 2020," Olam said. "Notwithstanding the impact of this impairment, the company expects its FY2020 net profit to remain positive, underpinned by strong growth in operating performance across the rest of the portfolio."

This impairment was determined by the investments/assets' recoverable value being the higher of the value in use and fair value less costs of disposal, Olam said.

The company noted that Gabon, which is located in Africa, has been experiencing lower rainfall as well as unfavourable rainfall distribution with prolonged dry spells during the June to September period.

To mitigate the moisture deficit risk, Olam had decided to invest in a large drip irrigation project in 2019. However, due to the impact of Covid-19, the implementation of the project has been delayed by 12-18 months with a potential adverse impact on yields and returns.

The revised cost and capital structure of OPG following this impairment will provide the project a better cost base going forward, Olam added.

The group is in the process of finalising its financial results, which will take into account the impairment assessment, while it continues to review and assess the carrying value of its assets.

The financial statements for H2 and FY2020 will be announced on Feb 26 next year.

"In the meantime, shareholders of the company should keep this disclosure in mind when dealing in the shares or other securities of the company," Olam said.

Shares of Olam International fell 2 per cent or S$0.03 on Tuesday to close at S$1.50.