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Latest Earnings from Olam International Ltd: What’s Next After Profit Triples?

Olam International Ltd (SGX: O32) had released its 2016 first-quarter earnings last Friday.

As a brief background, Olam is an agri-business company. It is is one of the largest cocoa producers in the world and also a big food commodity trader that deals with many agricultural products such as nuts, spices, wheat, rice, coffee, cotton, sugar, and dairy.

With that, let’s dive into Olam’s latest earnings.

Financial highlights

The following’s a quick summary of some of the latest financial figures from Olam:

  1. The company recorded revenue of S$4.76 billion, a 10.2% increase year-on-year.
  2. Profit attributable to shareholders soared by 213% from a year ago to S$113.6 million.
  3. Earnings per share (EPS) followed suit, rising three-fold from 1.32 Singapore cents in the first-quarter of 2015 to 3.95 Singapore cents in the reporting quarter.
  4. Cash flow from operations came in at S$160.6 million and capital expenditure (referring to just purchase of property, plant, and equipment) stood at S$116.8 million, resulting in positive free cash flow of S$43.7 million. This is an improvement from the negative free cash flow of S$50.2 million recorded during the same period a year ago (S$21.6 million in cash flow from operations and US$71.9 million in capex).
  5. As of 31 March 2016, Olam had US$1.6 billion in cash and equivalents and borrowings of S$12.0 billion, putting it in a net debt position of S$10.4 billion. This is a step back from the same period the year before when the company had a net debt position of S$8.0 billion (S$1.27 billion in cash and equivalents and borrowings of S$9.3 billion).

In sum, Olam had posted revenue, profit, and cash flow growth. The only snag is that its balance sheet had weakened.

Operational highlights

The Edible Nuts, Spices  & Vegetable Ingredients segment registered a 28% year-on-year increase in sales volume . But, revenue declined by 12.4% as prices fell across most products in the segment.

The Confectionery & Beverage Ingredients segment, meanwhile, recorded an 11.2% increase in volumes for the first-quarter of 2016, mainly due to the consolidation of results from the acquisition of some cocoa processing assets. Revenue in the segment jumped by 31.6% on the back of higher volumes and higher cocoa prices.

Olam’s Food Staples & Packaged Foods segment saw its trade volume rise by 8.1%, driven by the West Africa wheat milling business and steady growth in the Dairy, Rice, Palm and Sugar supply chain businesses. As a result of higher volumes, revenue increased by 5.5% despite lower prices for most commodities within the segment.

The Industrial Raw Materials segment experienced a 9.4% growth in volume as all products reported higher volumes. But, revenue couldn’t catch up (it actually declined by 8.9%) as lower prices across all commodities within the segment more than offset the higher volumes. Despite lower revenue, EBITDA improved by 11.5% based on the performance of the Cotton and Wood Products businesses.

Finally, Commodity Financial Services booked negative EBITDA of S$3.5 million in the first-quarter of 2016 as compared to a positive EBITDA of S$11.0 million in the first-quarter of 2015.

Future outlook

Olam’s chief executive, Sunny Verghese had shared some words on the company’s outlook in the earnings release:

“Our consistent performance amid challenging market conditions and uneven global growth reflects our sound business fundamentals and our diversified portfolio. We are confident about our growth prospects, on the back of our acquisition of ADM’s cocoa processing assets, BUA Group’s wheat milling assets, our entry into the animal feed business in Nigeria and our new joint venture with Mitsubishi Corporation in Japan. These initiatives will open up new opportunities and revenue streams as we continue to execute on our differentiated strategy.”

The company also wrote that the “long-term trends in the agri-commodity sector remain attractive, and Olam is well positioned to benefit from this as a core global supply chain business with selective integration.”

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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 Esjay does not own shares in any companies mentioned.