Olam International reports pressure on annual profits amid challenging conditions

Olam International has reported an increase in revenues for 2018, totalling $30.5 billion, up 16% across its global interests for the financial year.

However, annual profits after tax were down by 40%, to $347.8 million, which the company said was due to ‘tough market conditions’ that led to a weaker performance in Q4 of last year. Profits for the final quarter of last year stood at $75 million, 71.6% down year-on-year, owing to an exceptional gain of $155 million for the corresponding period for 2017.

EBITDA earnings for the year were also reduced by 6.9% year-on-year at $1.2bn, with an improved performance from cocoa and packaged foods being offset by lower performance from peanuts, rice and dairy businesses.

For confectionery, revenues decreased by 12.4% to $7.1bn, which the company said was mainly due to historically low cocoa prices, but EBITDA increased by 35.5% to $444m with a notable performance in the cocoa supply chain and processing operations.

Olam will execute on the four strategic pathways for growth as set out in the 2019-2024 Strategic Plan. It will strengthen, streamline and focus its business portfolio, drive margin improvement by enhancing cost and capital efficiency, generate additional revenue streams by offering differentiated products and services, and explore partnerships and investments in select new engines for growth.

Co-founder and group CEO Sunny Verghese said: “Compared with a strong performance in the previous year, our 2018 performance has been below our expectations amid tougher than anticipated market conditions, particularly in the second half of the year.

“Looking ahead, we are focused on executing on our Strategic Plan for 2019-2024 by investing in high-growth businesses in our portfolio where we have clear winnability. This will help us capitalise on key consumer trends, enabling us to achieve sustainable and profitable growth.”

Executive director and group COO, A. Shekhar, added: “We have grown our volumes and revenues, whilst managing our balance sheet very prudently. Our continued working capital optimisation initiatives, disciplined and targeted capital expenditure, while executing on planned divestments, have enabled us to deliver significant free cash flow to equity of S$1.1 billion and reduce gearing to 1.32 times.”

Meanwhile, in terms of its major activities, the company has joined other major businesses in the sector including Mars, Mondelez International and Barry Callebaut for the joint Cocoa and Forests Initiative which has now attracted over 30 leading businesses in the sector to help support farming communities in key cocoa growing territories and tackle deforestation.The company said that while political and economic uncertainties are expected to continue, it believed its diversified and well-balanced portfolio provides a resilient platform to navigate the challenges in both the global economy and commodity markets.

Among the key commitments that Olam has signed up to include achieving 100% traceability of its sustainable cocoa supply chain in Ghana and Côte d’Ivoire as part of action plan to end deforestation by cocoa in West Africa.

The business said it is on track to achieve full traceability of its direct origination supply chain worldwide by 2020, and is  committed to supporting the restoration and preservation of 460,000 hectares of forest in Côte d’Ivoire. As with other businesses in the sector, the company is set to complete mapping of all its supplier network in Ghana by the end of this year, and will help train 104,00 cocoa farmers this year in improving agricultural practices.

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