Olam Fourth-Quarter Profit Falls 48% as Tax Charges Surge

Olam International Ltd., the commodity trader backed by Singapore’s Temasek Holdings Pte, said fourth-quarter profit fell 48 percent, pressured by higher taxes and challenging market conditions.

Net income was S$56.8 million ($44.5 million) in the three months ended June 30, compared with S$109.5 million a year ago, Olam said yesterday in a statement. Revenue climbed 26 percent to S$6.5 billion.

Olam is cutting spending and seeking to raise cash by selling assets following a business review this year after it was targeted by short-seller Carson Block. The world’s second-largest rice trader in April set aside its goal to reach profit of $1 billion by 2016 as it slows the pace of investments.

“We see this as a transition year and we are three months into our strategic plan implementation,” Chief Executive Officer Sunny Verghese said in the statement. “We remain focused on the twin goals of pursuing profitable growth and sustained cash flow generation.”

Olam closed 1.7 percent down at S$1.435 in Singapore, its lowest since Dec. 17. The stock is down about 8 percent this year.

Tax Charges

Full-year profit slid 2.2 percent to S$362.6 million, from S$370.9 million a year earlier, Singapore-based Olam said. That compares with the S$361.7 million average of 15 analyst estimates compiled by Bloomberg. Full-year sales advanced 22 percent to S$20.8 billion.

With full-year earnings “being weak and next quarter being Olam’s seasonally weak quarter, near-term catalysts might be in short supply,” Anubhav Gupta, UBS AG analyst, said in a note dated yesterday. “Executing the new strategy while delivering earnings growth remains key to a re-rating,” he said. UBS has the stock at Sell, with a 12-month target price of S$1.33.

Olam booked S$50.6 million of tax charges in the quarter, compared with net tax credit of S$8.2 million a year earlier. Full-year tax charges rose to S$105.1 million from S$34.1 million a year ago, due to increased business from higher tax jurisdictions and one-time charges from selling a rice mill and almond orchards, the company said.

Earnings were also affected by “challenging” market conditions which emerged in the fourth quarter, Verghese said.

Olam’s coffee business was affected by an epidemic of coffee leaf rust in Central and South America, it said. Margins on cocoa, grains and palm trading were also lower from a year earlier. The company also said yesterday it purchased its first cocoa plantations by acquiring 95 percent of PT Sumber Daya Wahana in Indonesia.

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