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Olam Quarterly Profit Falls as Cotton, Wood Demand Wanes

Olam International Ltd., the food commodities supplier partly owned by Singapore’s Temasek Holdings Pte., said fourth-quarter profit fell 14 percent on lower earnings from its cotton and wood product businesses.

Net income dropped to S$109.5 million ($87.4 million) in the three months ended June 30 from S$127.4 million a year ago, Singapore-based Olam said today in a statement. That beat the S$90.9 million average of three analyst estimates compiled by Bloomberg. Revenue climbed 13 percent to S$5.1 billion.

Olam, the third-worst performer this year on Singapore’s benchmark index, also reported a decline in full-year profit. Net contribution from its industrial raw materials business, the second-largest unit by revenue in 2011 that supplies cotton, timber and rubber fell 48 percent to S$68.5 million in the quarter from a year earlier, Olam said today.

“Our business continued to face macro-economic headwinds stemming from the global economic uncertainties,” Olam said in the statement. “Trading conditions, particularly in our industrial raw materials segment, continued to remain with a negative impact on our overall performance.”

The stock gained 0.3 percent to S$1.99 at the close in Singapore today, before the earnings announcement. Olam is down 6.6 percent this year, compared with the 15 percent gain in the benchmark Straits Times Index.

Volatile Prices

Full-year net income fell 14 percent to S$370.9 million. The average of 19 analyst estimates was S$354 million, according to data compiled by Bloomberg.

The cotton business was affected by volatile prices and lower volumes from both growers and customers, Olam said.

“While there continues to be some residual uncertainty in the cotton markets, we believe the prospects for the cotton platform should be more positive in the second half” of the fiscal year 2013, it said.

The price of cotton has declined 17 percent this year on ICE Futures U.S. in New York. Commodity prices as measured by the Standard & Poor’s GSCI Spot Index of 24 raw materials declined 13 percent in the quarter.

Demand for wood products “continued to decline due to rapid devaluation of the Indian rupee and slowing infrastructure demand from China,” Olam said today in a separate statement.

Olam, one of the world’s top three suppliers of rice, cocoa, and coffee, continues to make “substantial progress” toward its goal of achieving $1 billion of annual profit after tax by 2016 through acquisitions and organic growth, Chief Executive Officer Sunny Verghese said today in the statement.

Returns Pressure

“The front-loaded nature of our investment program and some gestating investments could result in near term pressures on returns,” he said.

The company in the quarter announced plans to form a venture with Bloomer Chocolate Co. to boost cocoa production and another with Lansing Trade Group LLC to expand into grains and oilseeds in Canada. In May, Olam also said it will invest $240 million in its first sugar mill in the state of Minas Gerais, the second-largest sugarcane growing area in Brazil.

Olam’s confectionery and beverage segment, which procures cocoa and coffee, saw net contribution rise 43 percent in the quarter from a year earlier. Its food staples and packaged foods business, comprising rice, sugar, and grains trading posted a 35 percent gain in net contribution.

The division selling nuts, spices, and beans recorded a 22 percent gain in net contribution from a year earlier and a 71 percent gain in revenue, Olam said today.

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