Olam H1 profit inches up 0.2% to S$48 million

AGRI-FOOD giant Olam Group on Wednesday (Aug 14) reported a net profit of S$48.03 million for the first half-year, inching up 0.2 per cent from S$47.96 million in the year-ago period.

Earnings per share stood at S$0.0084, unchanged from the previous corresponding period.

An interim dividend of S$0.03 per share was declared for the period, unchanged from the previous year. It will be paid out to shareholders on Aug 29, after the record date of Aug 22.

The group said the slight improvement in earnings was due to operational profit growth being offset by higher net finance costs and taxes.

Operational profit increased 8.3 per cent to S$888 million in H1 2024, from S$819.6 million, mainly due to higher contributions from its food ingredients unit ofi, said the group.

Meanwhile, net finance costs rose 42.1 per cent on the year to S$733.9 million in H1 2024, mainly due to the rise in net debt from price-led working capital increases and higher average interest rates than in the previous year.

Revenue for H1, excluding exceptional items, was up 9.1 per cent to S$26.9 billion. The group attributed this to a fall in commodity prices across several products in Olam Agri portfolio, offset by higher selling prices for some products within the ofi unit.

Exceptional items, comprising costs related to closure of the fund management business and ongoing reorganisation costs including gross interest and tax, fell to S$25.6 million in H1 FY2024, from S$180.3 million.

Sales volume grew 13.9 per cent to 24.3 million tonnes in H1, mainly due to growth from Olam Agri, which helped offset the marginal reduction in sales volumes from ofi and the remaining Olam group. 

Segmentally, ofi’s revenue rose 24.9 per cent to S$9.6 billion due to higher volumes in the ingredients and solutions segment, as well as higher average selling prices.

The ingredients and solutions segment recorded a slight 3.1 per cent increase in sales volume. Revenue rose by 36.9 per cent to S$5.3 billion due to higher sales prices, particularly for cocoa and coffee, as well as increased dairy volumes.

Olam Agri’s revenue increased 2.7 per cent to S$16.7 billion on the back of higher sales volumes. This was offset by lower commodity and selling prices compared with H1 last year.

The group noted that sales volumes for H1 FY2024 normalised with a 16 per cent increase from a lower base in H1 FY2023, which was characterised by delays in harvesting, grain shipments and port congestion.

Meanwhile, the remaining Olam group reported an 18.3 per cent drop in revenue to S$568.1 million, due to a decline in sales across all segments. Sales volume fell 9.8 per cent largely from de-prioritised assets and incubating businesses.

Olam group chief financial officer N Muthukumar said: “Our net finance costs increased sharply mainly due to higher working capital needs, driven by record prices for some of the commodities, including cocoa and coffee, and increased benchmark interest rates.”

There is less worry about working capital as long as it is covered by sold and hedged inventory, or secured receivables. While gearing is higher due to the need cover margin calls on hedges, as long as it covers the risk of Olam’s sold contracts and secure receivables, it would be the prudent thing, said A Shekhar, chief executive officer of ofi.

“Out of the S$5 billion working capital increase, that is almost entirely covered,” he said.

The volatility with cocoa and coffee might be alleviated in the coming months, as a new batch of crops are harvested, but it is likely prices will only fall as the supply enters the market. Olam will be focused on securing margins and returns for the elevated cost of capital.

Shekar said: “So prices will come down in three months or six months or nine months, it really doesn’t matter. We’ll do exactly what we have been doing.”

Sunny Verghese, chief executive of Olam, expects operating conditions in the second half of the year to continue being affected by geopolitical and macroeconomic factors, while inflationary pressures begin to soften.

Olam is still committed to listing ofi and Olam Agri, however the listings are dependent on factors such as the capital markets conditions and strong performance of the two entities.

The company is targeting a dual listing in Singapore and Saudi Arabia for Olam Agri, but said it would not wait for too long for regulatory approvals from Saudi authorities.

“So at some point in time, we will decide if the Saudi market is not available to us from a regulatory standpoint, we will look at other options,” said Verghese.

Shares of Olam closed 6.5 per cent or S$0.08 lower at S$1.15 on Wednesday.