Highlights from Olam International’s Latest Third Quarter Results

Olam International (SGX: O32) is possibly the most controversial commodity trader currently that’s listed in Singapore.

In 2012, the company was accused of questionable accounting methods by short-seller and investment research outfit Muddy Waters. Both parties then subsequently got embroiled in a very public fight. More than a year later, Temasek Holdings, one of Olam’s largest shareholders and a leading sovereign wealth fund, offered in March this year to buy more shares of Olam from other minority shareholders at S$2.23 per share. The offer, which is still on-going, would further consolidate Temasek’s influence on the strategic future of Olam.

Operating results

The company announced its third quarter earnings yesterday.

For the nine months ended 31 March 2014, revenue for Olam dropped by 4.5% year-on-year to SS$13.7 billion. Meanwhile, net profits were some 89% higher at S$577 million. The bulk of the bottom-line gains were of a non-recurring nature however, and Olam’s operational PATMI (profits after tax and minority interests) – a better gauge of the company’s operational performance – had dipped by 8% year-on-year to S$277 million.

A 19.2% and 36.3% year-on-year increase in taxes and depreciation & amortization expenses, respectively, were largely responsible for pushing down Olam’s operational PATMI.

Since April 2013, Olam has been engaged in a number of strategic initiatives. Between then and now, the company has managed to complete nine such initiatives with three more currently in progress. Together, these programmes have brought back more than S$550 million in cash for the company and helped account for more than S$108 million in profits.

Olam has four main business segments: Industrial raw materials; confectionary & beverage ingredients; edible nuts, spices and vegetable ingredients; and food staples and packaged foods. For the nine-month period, the first three segments had earned a higher EBITDA (earnings before interest, taxes, depreciation & amortization). The last segment – food staples and packaged foods – had seen a drop in the financial metric.

The company’s balance sheet strength hadn’t changed much with its net debt to equity ratio improving just slightly from 2.06 three months ago to 2.03.

Going forward

Olam will cut back on its capital expenditures going forward; for the nine months ended 31 March 2014, capital expenditures for the company has already been reduced by 33% year-on-year to S$502 million. The objective of the company now is to focus on sustainable growth and to produce positive free cash flow from its operations. Olam’s shares are now basically hovering around the S$2.23 per share mark, which is the offer price from Temasek Holdings.

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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 Stanley Lim doesn’t own shares in any companies mentioned.