Olam International, unveiling a drop in profits, forecast a continuation of the currency market volatility which fuelled the decline – although said that another headwind, soaring hazelnut prices, had been “contained”.
The Singapore-based agricultural trading house, unveiling a 12.0% decline to Sing$118.7m in earnings for the October-to-December quarter, said that the drop reflected “the adverse impact of currency devaluation” on takings in many of the countries in which it operates.
The impact of falling currencies had hurt particularly the food import businesses in Nigeria, where the naira lost 10% against the dollar over the quarter, and Russia, where the rouble plunged by one-third.
Indeed, Olam’s food staples division saw earnings before interest, tax, depreciation and amortisation (ebitda) drop by 27% to Sing$70.3m, leading the decline in group profitability.
The division also includes the Uruguay dairy operation which showed “continued underperformance”.
Hazelnut problem cracked
And Sunny Verghese, the Olam chief executive, forecast that the “current macro-economic uncertainty and currency volatility… will continue through 2015”.
Furthermore, the group’s Uruguay dairy operation, at which Olam has attempted to improve returns by arranging a sale-and-leaseback land deal, is also “likely to underperform in 2015”, Olam said.
However, the group was more upbeat over a better performance in hazelnuts, in which it was forced to cover obligations at elevated prices after crop damage from a late frost in Turkey, the top producing country, put a squeeze on world supplies.
“The negative impact… is now contained and behind us,” Olam said.
Mr Verghese said that the group would be protected somewhat from world market “uncertainties” by the variety of its operations, which extend from Russian wheat exports to Australian almond production.
“Olam believes its diversified portfolio with leadership positions in many segments provides a resilient platform,” he said.
He added that the “long-term trends in the agri-commodity sector remain attractive, and Olam is well-positioned to benefit from this”.
Nonetheless, Olam shares closed down 1.5% at Sin$2.00 in Singapore.
Singapore-based broker Maybank restated a “hold” rating on the shares, with a target price of Sing$2.07, saying that there was a “lack of catalysts” to spur a rally in the stock.
“Short-term, foreign exchange volatility could weigh on Olam’s earnings,” the broker added. ]SOURCE: AGRIMONEY.COM]