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A Look At Olam’s Earnings Report

Olam International (SGX: O32) released its FY2013 results last night after market close. Sales volume by million metric tons (MMT) grew significantly 49.5% year-on-year from 10.675 to 15.953, leading to an increase of 21.7% in sales revenue from S$17.1 billion to S$20.8 billion.

However, full year net profit ended slightly down 2.2% from S$370.9 million to S$362.6 million. The decrease in net profits can be mainly attributed to the higher tax expense which soared 200% from the previous year.

The difference of $71 million in tax charges are primarily due to:

  1. increased business and PBT contribution from higher tax jurisdictions
  2. a one-off tax charge of S$12.8 million resulting from the sale of the Basmati rice mill in India and the sale-and-leaseback of almond orchards in the US
  3. tax credits received in the previous year

Excluding the exceptional tax increase, the core profits rose 13.4% year-on-year from S$437.9 million to S$496.7 million.

Annual Cash Flow Summary

2013

2012

2011

2010

2009

Operating Cashflow (before Interest & Tax)

1,074

894

811

461

331

Changes in Working Capital

-339

-307

-2,095

-1,099

297

Net Operating Cashflow

735

587

-1,284

-638

628

Capex/ Investments

-1,051

-1,248

-901

-821

-544

Free cashflow (before RMI)

-316

-661

-2,185

-1,459

84

Adjustment for changes in RMI/ Receivables

131

743

1,359

813

118

Adjusted Free Cashflow (after RMI)

-185

82

-826

-646

202

*RMI: inventories that are liquid, hedged or sold forward

On the side note, Olam was thrown into the spotlight by Muddy Waters last year for its hefty debt and negative cash flows. Taking a closer look at Olam’s cash flow position over the years, Olam had expanded aggressively resulting in an increased capital expenditure that exceeds operating cash flow. Olam has since started to reduce the pace of its new investments and paring down assets to bolster its financial position.

Commenting on the performance of the full year results, Olam’s Group MD & CEO, Sunny Verghese said: “Our headline results were dampened somewhat by the impact of increased tax charges versus last year and challenging market conditions which emerged in Q4 and affected some parts of our business. Despite this, underlying performance in most segments was robust overall, reflecting the strength of our business model and diversification in the sources of earnings across our platforms and geographies.

“We see this as a transition year and we are three months into our strategic plan implementation. We remain focused on the twin goals of pursuing profitable growth and sustained cash flow generation,” he added.

A final dividend of 4.0 cents is declared and it translates to a dividend yield of 2.74% at Thursday’s closing price of S$1.46. As at June 30, 2013, Olam is trading at 9.88 times earnings while its Net Asset Value (NAV) is recorded as S$1.5415 per share.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.