Olam in Talks to Sell Asset Stakes After Missing Cash Flow Goal

Olam International Ltd. is in talks to sell more assets and will shift focus to beefing up profit margins over sales volumes in a drive to free up cash, said the Singapore-based food commodities trader.

The company, controlled by state investment arm Temasek Holdings Pte., missed its target to generate more cash than it spent in the fiscal year ended June 30, Chief Executive Officer Sunny Verghese said today. Olam is in talks to sell stakes in assets, including a fertilizer project in Gabon, he said.

“Watch this space” for more divestments and partnerships, Verghese said at a briefing in Singapore. “We are not focused on growing volumes any more, but rather on growing our profit pool.” Olam’s net income plunged 44 percent to S$31.8 million ($25 million) last quarter, compared with S$56.8 million a year earlier, it said today in a statement.

Olam’s earnings were “disappointing” and the shift in strategy to profit margin over volume has yet to yield results, said Ephrem Ravi, an analyst with Barclays Plc in a report today. The margins for food businesses were down 60 percent on the previous three months, even as they rose on a year-earlier basis, Ravi said.

“The September quarter is even weaker from a seasonality perspective; hence the incremental datapoints for the stock are unlikely to improve in the near term,” Ravi said.

Seeking Investors

One of the world’s top three coffee and rice traders, Olam is seeking investors, such as Mitsubishi Corp., as a rise in global food demand adds to the attraction of agriculture. A lack of cash flow was one of the issues raised in a 2012 report by short-seller Muddy Waters LLC, which caused Olam’s stock to plummet.

Mitsubishi said in June it will buy a controlling stake in Olam’s Australian grain unit, while the Tokyo-based trading house’s Sanyo Foods Co. agreed this month to purchase 25 percent of Olam’s packaged food division.

Olam lost Tata Chemicals Ltd. as a partner in Gabon after the Indian company announced it would not proceed with buying a 25.1 percent stake in the ammonia-urea fertilizer project, the Singapore trader said in March. Talks with a couple of companies that could replace Tata are ongoing, Verghese said. He declined to name them.

Olam’s revenue slipped 11.4 percent to S$5.76 billion in the three months ended June 30, while the volume of sold commodities declined 18.6 percent to 3.5 million metric tons.

This and one-time charges from “impairment” at a cashew facility in Nigeria, the sale of a Gabon timber unit, and the early repayment of high-interest loans were factors in the poor profit performance.

Operating profit after tax and minority interest rose 1.5 percent to S$48.5 million.