Olam International's Ukraine grain business has "completely
dried out" because of the country's political crisis, the group said, as it
unveiled concerns over Africa's ebola outbreak too.
The Singapore-based agribusiness giant - in follow-up
comments to its announcement of a 1.5% rise to Sing$48.5m in underlying
earnings for the April-to-June quarter ï¿½ said that a drop in grain trading
profits was one of the factors behind its sluggish growth.
Grain volumes fell, in part because of asset disposals, with
Olam revealing it had sold a stake in its South African grain trading operation
besides the $68m sales to Japan's Mitsubishi Corp, as announced in June, of 80%
of its Australian business.
"That has meant lower volumes as well as lower ebitda [earnings
before interest, tax, depreciation and amortisation] in grains which is a
choice that we have made," said Shekhar Anantharaman, Olam director for finance
and business development.
Olam, which said it had reaped a "significant gain" on its Australian
disposal, has yet to reply to an Agrimoney.com request for further information
on the South Africa deal.
'Completely dried out'
However, the company had also seen a drop in grain volumes
thank to a "choice which has been fostered upon us", Mr Shekhar said, highlighting
the "Ukrainian-Russian crisis".
In the April-to-June quarter, "certainly, that part of the
volume has not happened which is obviously a concern," he told investors.
"The Ukraine business has completely dried out in the last
four months and that is still a concern for us for the next year."
In fact, Ukraine's overall grain exports in June and July,
the first two months of 2014-15, rose 48% to 4.7m tonnes, according to
agriculture ministry data, although the country's unrest, and in particular the
movement of pro-Russian rebels towards the port of Mariupol, have raised market
The comments add Olam to agriculture groups such as egg producer
AvangardCo, US-based Cargill and poultry group MHP reporting some losses to the
Mr Shekhar added that the Olam "would like to stay on a
Russia - it's an important part of our business so the Russian business is
While Olam highlighted that its West African flour milling
business had performed better than expected, it highlighted the potential
threat there too should the ebola epidemic spread beyond current epicentre, in
Sierra Leone, Liberia and Guinea, to which is has only small investments.
In Nigeria, where six people have died of the virus, Olam
has "very significant exposure in operations", including in milling, chief
executive Sunny Verghese said, adding that the group had imposed a series of measures
to protect its own staff and products.
These included a ban on travel in the three most affected
countries, and travel to Nigeria "only if it is absolutely required," Mr Verghese
said, adding that the group was holding daily "crisis committee" meetings on
ebola, with further in-country sessions.
"It is a serious issue and requires to be treated very
seriously," Mr Verghese said.
The comments came as the group expanded on its results,
which showed a drop in headline earnings of 44% to Sing$31.8m for the latest
quarter, reflecting one-off charges such as a loss on disposal of timber assets
Mr Verghese said he was "pleased" with Olam's progress in
revamping itself in line with a strategy of debt reduction and operational shake-ups
which was drawn up after the group was targeted by short-selling group Muddy
After the results, Maybank Kim Eng termed the performance "in
line" with expectations, and restated a "hold" recommendation on Olam shares,
which it said were trading at a 15% premium to those in comparable companies.
However, OCBC restated a "sell" rating on the share, for
which it estimates Sing$2.38 as fair value, saying that "current valuations
appear slightly stretched".
Olam shares on Monday closed down 2.6% at Sing$2.58 in