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Olam finds relief in cocoa prices

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Olam International flagged the benefits of its big bet on the cocoa sector, with the $1.2bn purchase of Archer Daniels Midlands last October, even as Singapore-based commodity trading giant unveiled a drop in earnings.

Olam's profits in the July-to-September period fell 8.6 to $20.5m, compared with $22.5m in the same period last year.

The company's revenues were up 6% to $4.7bn in the July to September period, compared with $4.5bn in the same period a year earlier.

However, the company's confectionary and beverage ingredient segments outperformed, achieving a 63% surge to $60.0m in earnings before interest, tax, depreciation and amortisation for the period, helped by higher prices of coffee and cocoa, as well as the ADM acquisition.

The division's revenues rose 5.5% to $1.44bn, on sales volumes flat at some 325,000 tonnes.

Acquired business 'on track'

The group bought Archer Daniels Midland's cocoa processing operations, which included eight plants spread across Brazil, Canada, Europe, Singapore and West Africa, and employ 1,500 people.

The acquisition lifted its cocoa processing capacity from 100,000 tonnes a year to 700,000 tonnes.

It is "very heartening to see that [the acquired business] is performing better than expected, already fully integrated," said Sunny Verghese, the Olam founder and chief executive.

"We are happy to report that cocoa processing business is on track to meet targets for 2016."

Expansion into Brazil, Africa

On coffee, Mr Verghese said that the division, which had seen "one of the best starts in the last few years" to its financial year, "continued to perform well both on the green coffee as well as in the soluble coffee businesses.

"Of particular highlight, our soluble coffee businesses in Vietnam and Spain are running to full capacity and already have a forward book of next one year, and both are looking at expanding their capacity as we speak," he said.

He also said that Olam was continuing its investment in coffee plantations in Brazil and, in Africa, Nigeria, Tanzania and Zambia.

'Low almond prices'

The stronger results in cocoa and coffee helped offset a weaker result in the edible nuts and spices division, which saw a 28% tumble to $65.0m in ebitda, on revenues down 14% at $985.6m.

Mr Verghese said that the decline was "primarily due to very low almond prices" than last year, when they were "extremely high".

Still, while the almond prices had declined, "encouraging news is that almond prices are already looking up at $6.50 a kilogramme.

"And we believe that this business is very profitable and will continue to perform better next quarter."

Bullish on agri-commodity

Olam said that overall the long-term trends in the agri-commodity sector "remain attractive".

"Olam is well positioned to benefit from this as a core global supply chain business with selective integration into higher value upstream and mid or downstream segments," it said.

Olam's shares fell 1.9% to Sing$2.10 in Singapore.

By Tanya Ashreena

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