Olam posts 44.4% rise in H1 net profit to S$332.7m

AGRI and food giant Olam International recorded a 44.4 per cent rise in net profit to S$332.7 million for the first half of the year ended June 30, from S$230.4 million a year ago.

This was due to a combination of a net exceptional gain of S$130.6 million from the group's divestments of the remaining half stake in Far East Agri and the partial stake sale of ARISE P&L, but was offset partially by one-off exit and closure costs of other de-prioritised assets that were divested or shut down.

Although revenue for the period rose 7.1 per cent to S$17.1 billion from S$15.9 billion last year, earnings before interest and taxes (Ebit) fell by 18.8 per cent owing to lower contributions from the Olam Food Ingredients (OFI) segment due to reduced contribution from the Almonds, Hazelnuts and Cocoa processing businesses - which were affected by adverse prices and margin pressures resulting from the Covid-19 pandemic.

The group attributed the revenue increase to volume growth as well as higher average selling prices.

This also marks the first time Olam is reporting the results for its newly formed operating groups - OFI, Olam Global Agri (OGA) and Olam International Limited (OIL) - following its reorganisation that was aimed at simplifying its businesses in order to sharpen its focus.

For H1, OFI and OGA saw their revenues increase by 8.8 per cent and 8.4 per cent year on year respectively, while OIL, the parent company of both OFI and OGA, saw its revenue slip 14.6 per cent on the back of the closure of the sugar, rubber and fertiliser trading desk, the fundamental fund and wood products business in Latin America.

Olam said each of the new operating groups is currently engaged in developing a full potential strategic plan along with a cost and capital transformation plan that will allow the group to "unlock and maximise long-term value".

The board of directors has declared a one-tier tax-exempt interim dividend of 3.5 Singapore cents, unchanged from the corresponding period a year ago. The dividend is slated to be paid out on Aug 28.

As at June 30, Olam had cash and cash equivalents of S$5.76 billion. The group said its discipline in proactively controlling costs, conserving cash and managing its capital structure had helped it generate free cash flow to equity of S$826.9 million in H1.

Net gearing remained steady at 1.29 times despite higher net debt with an adjusted gearing of 0.34 times net of readily marketable inventory and secured receivables.

Olam said Covid-19 has "adversely impacted" some of its business segments, and expects its performance in H2 to "consequently recover and show better results".

Olam chief executive Sunny Verghese said: "While the year ahead will remain challenging and uncertain with a range of outcomes that could impact demand and supply conditions across geographies, businesses and financial markets, we remain confident in the strength of our business model to emerge stronger from this crisis."

Shares of Olam were trading at S$1.37 as at 9.14am on Thursday, up S$0.05 or 3.8 per cent.