Olam in Talks to Sell Asset Stakes After Missing Cash Flow Goal
2014-08-29 07:36:43.725 GMT
Yuriy Humber

Aug. 29 (Bloomberg)  - Olam International Ltd. is in talks
to sell more assets and will shift focus to beefing up profit
margins over sales volumes in a drive to free up cash, said the
Singapore-based food commodities trader.
The company, controlled by state investment arm Temasek
Holdings Pte., missed its target to generate more cash than it
spent in the fiscal year ended June 30, Chief Executive Officer
Sunny Verghese said today. Olam is in talks to sell stakes in
assets, including a fertilizer project in Gabon, he said.
“Watch this space” for more divestments and partnerships,
Verghese said at a briefing in Singapore. “We are not focused
on growing volumes any more, but rather on growing our profit
pool.” Olam’s net income plunged 44 percent to S$31.8 million
($25 million) last quarter, compared with S$56.8 million a year
earlier, it said today in a statement.
Olam’s earnings were “disappointing” and the shift in
strategy to profit margin over volume has yet to yield results,
said Ephrem Ravi, an analyst with Barclays Plc in a report
today. The margins for food businesses were down 60 percent on
the previous three months, even as they rose on a year-earlier
basis, Ravi said.
“The September quarter is even weaker from a seasonality
perspective; hence the incremental datapoints for the stock are
unlikely to improve in the near term,” Ravi said.

Seeking Investors

One of the world’s top three coffee and rice traders, Olam
is seeking investors, such as Mitsubishi Corp., as a rise in
global food demand adds to the attraction of agriculture. A lack
of cash flow was one of the issues raised in a 2012 report by
short-seller Muddy Waters LLC, which caused Olam’s stock to
plummet.
Mitsubishi said in June it will buy a controlling stake in
Olam’s Australian grain unit, while the Tokyo-based trading
house’s Sanyo Foods Co. agreed this month to purchase 25 percent
of Olam’s packaged food division.
Olam lost Tata Chemicals Ltd. as a partner in Gabon after
the Indian company announced it would not proceed with buying a
25.1 percent stake in the ammonia-urea fertilizer project, the
Singapore trader said in March. Talks with a couple of companies
that could replace Tata are ongoing, Verghese said. He declined
to name them.
Olam’s revenue slipped 11.4 percent to S$5.76 billion in
the three months ended June 30, while the volume of sold
commodities declined 18.6 percent to 3.5 million metric tons.
This and one-time charges from “impairment” at a cashew
facility in Nigeria, the sale of a Gabon timber unit, and the
early repayment of high-interest loans were factors in the poor
profit performance.
Operating profit after tax and minority interest rose 1.5
percent to S$48.5 million.

--With assistance from Chanyaporn Chanjaroen in Singapore.

To contact the reporter on this story:
Yuriy Humber in Tokyo at +81-3-3201-3521 or
yhumber@bloomberg.net
To contact the editors responsible for this story:
Jason Rogers at +81-3-3201-8479 or
jrogers73@bloomberg.net
Peter Langan