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Olam forecasts revival in its coffee fortunes

Olam forecasts flat palm oil prices, and a revival in its coffee fortunes

27 Feb 2018 by Mike Verdin

Coffee downturn

The comments came as Olam unveiled a surge to Sing$265.1m in earnings for the October-to-December quarter, up from Sing$102.2m a year before, although the improvement reflected gains from sales of Indonesian sugar refining assets and nut orchards in the US.

Excluding one-time factors, earnings rose a more modest 7.2% to Sing$109.7m, with underlying ebitda (earnings before interest, tax, depreciation and amortisation) down 10.4% at Sing$312.8m.

The decline reflected largely weak conditions in coffee, which for 2017 as a whole put in a “significantly lower contribution”, Olam said.

While the coffee operation “had a good first half, tougher market conditions and short crop across major origins in the latter half of the year adversely impacted its overall ebitda in 2017”.

‘Volume shortfall’

Shekhar Anantharaman, the Olam chief operating officer, highlighted dent to results from some weak 2017 coffee crops, “especially South and Central American crops.

This had “created a volume shortfall for us”, a squeeze spurred too by the fact that “Brazilian farmers also held back” on sales.

“The one big reason for the [coffee operation] underperformance was the shortage in volume.

“And before going into some of these crops, we were also basis short. So in covering some of the short positions, there was a price to pay,” he told investors.

‘Quite positive’

However, he added that the group felt “quite positive” over coffee prospects, given the potential for a recovery in supplies, both as farmer sales come through, and with the prospect of a large Brazilian crop ahead.

Furthermore, the group was “quite positive about where the [Olam] cocoa business is positioned” too, Mr Anantharaman added, flagging in particular changes to cocoa powder marketing strategy.

He added: “The processing business has remained quite firm. Processing margins have remained quite firm. The combined ratios have remained quite firm.”

And, speaking at a time of market talk of a squeeze in cocoa bean supplies from top producer Cote d’Ivoire, he said that “on the origination side, we [Olam] always had a great footprint”.