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Olam restructuring bears fruit

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Olam International has unveiled rising profits as the groups' move up the value chain bears fruit in a time of plunging commodity prices.

The Singapore-based agribusiness saw higher earnings, and lower revenues and sales volumes, after a drive to cut costs and focus on higher margin offerings, which included a move out of the Australian grain sector.

And Olam indicated that it intends to go further in its restructuring, including drawing back from the troubled dairy sector.

"We continue to expand selectively in prioritised platforms while reducing our presence or exiting from lower- margin businesses," said group chief executive and director Sunny Verghese.

Rising profits, falling sales

Olam saw its net profit for three months to June 30 surged by nearly 200% to S$94.7m, compared to S$31.8 million in the same period last year, and S$31.3m in the same period last year.

The rise in profits came as the company's revenue fell 16% to S$4.81bn, thanks to proportionally lower trade volumes.

Olam announced that it would be paying a half-year dividend of 2.5 Singapore cents a share.

Strong performance

Olam has been going through a period of restructuring, which including divesting stake in Australian grains and the packaged food business.

"Our strong performance despite the current depressed macroeconomic climate is testament to our disciplined focus on executing our strategic plan," said Mr Verghese.

Olam stated that it remains focused on "fixing some of the underperforming profit centres".

Dairy pullback

In particular, the company is planning to pull back from the dairy sector, where prices recently reached 13-year lows.

Olam will delay planned investments in its dairy business in Uruguay, and carry out a restructuring of the business.

"We stay focused on taking decisive actions to manage the few underperforming profit centres, especially the Dairy farming operations in Uruguay," said Olam finance director A. Shekhar.

Cocoa stake

Meanwhile Olam is in the process of increasing its stake in the cocoa market.

The $1.3bn purchase of ADM's cocoa business, which was originally agreed in December last year and greenlit by the European Union this June, will be completed in the last three months of this year.

The deal will make Olam the world's third largest cocoa processor.

Olam also recently acquired McCleskey Mills, a US peanut processing business.

Olam shares closed up 2.3% at S$1.80 a share.

By Agrimoney.com

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