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Olam results highlight drive into grains trading

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Olam International flagged the impact of its growth in the "inherently lower margin" business of grains trading as it unveiled a far faster rise in volumes than profits at its biggest division, foods.

The group's foods business achieved sales volumes of 2.6m tonnes in the July-to-September quarter - nearly three times those of the same period last year – thanks to a drive into grains handling.

"The strong volume growth was driven by the grains business, which saw an increase in milling volumes in Africa, as well as origination volumes across Australia, Russia and Ukraine," Olam, which is based in Singapore, said.

However, the foods division's profits rose by a more modest 37% to Sing$110.6m.

Profits on a per tonne basis, of Sing$43, were half those a year before, a drop "due to the inherently lower margin on bulk products like wheat, sugar and rice".

Expansion in grains

The comments follow observations by a number of contacts over Olam's expansion, often termed "aggressive", into grains, especially in the former Soviet Union.

The group during the quarter bought the Azov grain terminal, in Russia's southern Rostov region, joining rivals such as Swiss-based Glenore and Louis Dreyfus Commodities, and Ukraine Kernel Holdings, to have invested in Russian port facilities.

In Australia, where Olam last month appointed Bob Dall'Alba as country head, to succeed Richard Haire, the group operates from the east coast, shipping grain mainly to buyers in Asian countries such as Indonesia, Malaysia and Vietnam.

The group is, with Noble and Wilmar International, one of the "Now" group of commodities trading, viewed as Asia's answer to the West's ABCD group - Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus - which have long dominated global agricultural commodities trading.

Earnings rise

Olam unveiled group earnings of Sing$43.2m for the quarter, a rise of 26%, on a doubling in revenues to Sing$3.68bn.

Profits in edible nuts and spices rose by 22% to Sing$97.7m, boosted by the acquisition of a hazlenuts business in Turkey, and "favourable weather" for almond operations in Australia and the US.

Profits in the confectionery and beverage ingredients division rose 10.5% to Sing$69.8m, helped by a "strong and steady" performance in coffee and cocoa.

The cocoa business, supported by the acquisition of Macao Commodities Trading, "continued to pursue growth by providing higher value-added processing and services to customers".

Cotton revival

Olam also restated forecasts of a turnaround at its cotton business in the first half of calendar 2013, after difficulties it suffered, along with operations in rival commodity groups such as Glencore and Louis Dreyfus, thanks to disruption caused by last year's price volatility.

A run of defaults by farmers on the run up to a record high of 227 cents a pound in cotton futures last year, as growers sought to get out of contracts struck at lower values, was followed by mills walking away from contracts as prices subsequently slumped.

"The cotton business has seen volume recovery during the quarter and is expected to start delivering normalised net contribution margins" from the beginning of next year, Olam said.


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